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Calculate the rate of return available to shareholders for a company financing $1 million of assets with the following three arrangements: a. All equity b.
Calculate the rate of return available to shareholders for a company financing $1 million of assets with the following three arrangements:
a. All equity
b. 50% equity, and 50% debt at an interest rate of 12% per annum.
c. 25% equity, and 74% debt at an interest rate of 12% per annum.
The assets are expected to generate earnings before interest of $150,000 per annum in perpetuity.
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