Question
Simmons Inc. has an expected net income of 4 million Eros at the end of the year. The company is currently all equity financed but
Simmons Inc. has an expected net income of 4 million Eros at the end of the year. The company is currently all equity financed but it is planning to undertake som debt so that the debt-to-equity ratio is now 0,5 and the ratio will be kept constant by company. The assets will be fully depreciated in the next three years, whit annual depreciation installments of 1000000 Euro each. The company does not plan to acquire any asset. The expected return on unlevered equity for Simmons is 9,25% and the cos of debt is 5,25%. The tax rate on corporate earning is 32%. What is Simmons return on levered equity?
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