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Animal Inc. plans to maintain its optimal capital structure of 70 percent debt, 10 percent preferred stock, and 20 percent common equity indefinitely. The required
Animal Inc. plans to maintain its optimal capital structure of 70 percent debt, 10 percent preferred stock, and 20 percent common equity indefinitely. The required return on each component source of capital is as follows: debt 8% , preferred stock 12 percent; common equity 20 percent. Assuming a 20 percent marginal tax rate, what after-tax rate of return must the firm earn on its investments if the value of the firm is to remain unchanged?
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