A Firm Has an Expected Return on Equity of 15

question 113

Multiple Choice

A firm has an expected return on equity of 15% and an after-tax cost of debt of 6%. What debt-equity ratio should be used in order to keep the WACC at 12%?

• A) 0.50
• B) 0.75
• C) 0.67
• D)0.33

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Definitions:

Bottled Water

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Equilibrium Quantity

Equilibrium quantity is the amount of goods or services supplied and demanded at the equilibrium price, where market supply and demand balance each other.

Wage Subsidy

A financial incentive provided by the government to businesses to encourage the hiring of more employees or to reduce unemployment.

Earned Income Tax Credit

A tax credit that can be refunded, designed for individuals and families of low to moderate income, especially those with children, to help lessen poverty and promote employment.