A Firm Has an Expected Return on Equity of 16

question 32

Multiple Choice

A firm has an expected return on equity of 16% and an after-tax cost of debt of 8%.What debt-equity ratio should be used in order to keep the WACC at 12%?

• A).50
• B).75
• C)1.00
• D)1.50 Let x = debt/asset ratio.Then
• )12 = .08x + (1-x).16
• = )08x + .16 - .16x
• )08x/.08 = .04/.08
• X = .50

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Definitions:

IUPAC Name

The organized assignment of names to chemical compounds following the principles of the International Union of Pure and Applied Chemistry.

Ethanol

An alcohol with the formula C2H5OH, commonly known as alcohol, used in beverages, as a solvent, and in the manufacture of many products.

Impurities

Unwanted substances or contaminants found within or alongside a chemical substance or mixture, which can affect purity and performance.

Methanol

CH3OH, a fundamental alcohol, is employed across various uses including as a solvent, antifreeze, fuel, and as an initial substance for the creation of additional chemical products.