Question
A) Consider an ideal Modigliagni-Miller setting (i.e., perfect financial market, no bankrupt costs, no taxes). Suppose the return on assets is 9%. The cost of
A) Consider an ideal Modigliagni-Miller setting (i.e., perfect financial market, no bankrupt costs, no taxes). Suppose the return on assets is 9%. The cost of debt is 6%. The share of debt in capital is 33%. The return on equity is _____% (please remember to enter your answer as a percentage point).
B) Consider an ideal Modigliagni-Miller setting (i.e., perfect financial market, no bankrupt costs, no taxes). Suppose the return on assets is 12%. The cost of debt is 6%. The share of debt in capital is 31%. The premium for financial risk is _____% for equity. (please remember to enter your answer as a percentage point).
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