What Is the Expected Rate of Return to Equityholders If

question 73

Multiple Choice

What is the expected rate of return to equityholders if the firm has a tax rate of 35%, an interest rate on debt of 10%, a WACC of 15%, and a debt-asset ratio of 60%?

• A) 12.50%
• B) 21.25%
• C) 22.50%
• D)27.75%

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Definitions:

Relevant Range

Relevant Range is the range of activity or volume over which the specific assumptions about cost behavior in a financial model remain valid, commonly referenced in cost accounting and financial planning.

Fixed Costs

Expenses that do not change with the level of production or sales volume, remaining constant over a specified period of time.

Traceable Fixed Advertising

Traceable fixed advertising costs are fixed expenses allocated to specific marketing campaigns or advertisements, whose effectiveness in generating sales can be directly monitored and assessed.

Fixed General Factory Overhead

Refers to the regular, consistent costs incurred by a factory that are not directly tied to the level of production, such as rent and salaries of permanent staff.