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Modigliani Co. has firm assets that are considered twice as risky as the overall market. The firm's target capital structure is 40% equity and 60%

Modigliani Co. has firm assets that are considered twice as risky as the overall market. The firm's target capital structure is 40% equity and 60% debt. If the expected market risk premium is 8% and the risk free rate is 4%, what is the expected return on Modigliani's equity? (Assume that the tax rate is 0%).

  • A. 20%

  • B. 24%

  • C. 44%

  • D. 28%

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