What is the maximum rate that can be paid on debt and maintain a 14% WACC with a 19% expected return on equity in a firm with a 60% debt-to-asset ratio? Ignore taxes.

Name: What is the maximum rate that can be paid on debt and maintain a 14% WACC with a 19% expected return on equity in a firm with a 60% debt-to-asset ratio? Ignore taxes.
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Question

Quizplus · Accepted Answer

To find the maximum rate on debt, solve the equation: 14% = 0.6 * r_debt + 7.6%. This gives r_debt = (14% - 7.6%) / 0.6 = 10.67%.

What Is the Maximum Rate That Can Be Paid on Debt