Friday 8 June 2012

Shawhan Supply plans to maintain its optimal capital structure of 30% debt, 20% preferred stock,


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.18.0%
b.13.0%
c.10.0%
d.14.2%

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