Assume a firm is financed with 30% debt on which it pays interest of 9%.What is the expected return on equity if the expected return on assets is 14%? Ignore taxes.
A) 16.14%
B) 17.86%
C) 14.92%
D) 15.50%

Name: Assume a firm is financed with 30% debt on which it pays interest of 9%.What is the expected return on equity if the expected return on assets is 14%? Ignore taxes. A) 16.14% B) 17.86% C) 14.92% D) 15.50%
Brand: Quizplus
Rating: 4.8 (39 reviews)

Question

Quizplus · Accepted Answer

E(R)e = 0.14 + [0.30 / (1 − 0.30)](0.14 − 0.09) = 0.1614, or 16.14%

Assume a Firm Is Financed with 30% Debt on Which