Shawhan
Supply plans to maintain its optimal capital structure of 30% debt, 20%
preferred stock, and 50% common stock far into the future. The required
return on each component is: debt–10%; preferred stock–11%; and common
stock–18%. Assuming a 40% marginal tax rate, what after-tax rate of
return must Shawhan Supply earn on its investments if the value of the
firm is to remain unchanged?
A. 13.0%
B. 10.0%
C. 14.2%
D. 18.0%
A. 13.0%
B. 10.0%
C. 14.2%
D. 18.0%
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