Suppose Blank Company has only one project,as forecast above,and an unlevered cost of equity of 8%.If the company borrows $10,000 at 5% to make the investment,what is expected return to equity holders?
A)8.0%
B)11.6%
C)9.33%
D)30.0%
E)33.3%

Question

Quizplus · Accepted Answer

The expected return to equity holders can be calculated using the formula: Return on Equity = Unlevered Cost of Equity + (Unlevered Cost of Equity - Cost of Debt) * (Debt/Equity). Assuming the entire investment is financed by equity and debt, the equity portion is the total investment minus the debt. The calculation yields 9.33%.

Suppose Blank Company Has Only One Project,as Forecast Above,and an Unlevered