Question
A firm currently has a capital structure with 25 % debt. The debt, which is virtually riskless, pays an interest rate of 8 %. The
A firm currently has a capital structure with 25 % debt. The debt, which is virtually riskless, pays an interest rate of 8 %. The expected rate of return on the equity 14 %. What is the Weighted-Average Cost of Capital if the firm pays no taxes? Enter your answer as a percentage rounded to two decimal places. Do not include the percentage sign in your answer.
WACC = 12.50.02 (already answered)
What would happen to the expected rate of return on equity if the firm changed its capital structure to 45 % debt? Assume the firm pays no taxes, the cost of debt does not change, and that the initial WACC is 12.50 %. Enter your answer as a percentage rounded to two decimal places. Do not include the percentage sign as part of your answer.
Question: Return on equity = ____
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