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Based on current market values, Shawhan Supplys capital structure is 30% debt, 20% preference shares, and 50% ordinary shares. When using book values, capital structure
Based on current market values, Shawhan Supplys capital structure is 30% debt, 20% preference shares, and 50% ordinary shares. When using book values, capital structure is 25% debt, 10% preference shares, and 65% ordinary shares. The required return on each component is: debt10%; preference shares11%; and ordinary shares18%. The marginal tax rate is 40%. What rate of return must Shawhan Supply earn on its investments if the value of the firm is to remain unchanged?
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