A company has a target debt-to-equity ratio 2/3. The firm has no preferred stock. The firm's bonds have a coupon rate of 9% and YMT of 8.5%, and the firm is subject to a 30% corporate tax rate. The firm has common stock with a beta of 1.41. The risk free rate on treasury bills is 4% and the expected market risk premium is 10%. What is the minimum after-tax rate of return that the company must earn on its investments?

A company has a target debt-to-equity ratio 2/3. The firm has no preferred stock. The firm's bonds have a coupon rate of 9% and YMT of 8.5%, and the firm is subject to a 30% corporate tax rate. The firm has common stock with a beta of 1.41. The risk free rate on treasury bills is 4% and the expected market risk premium is 10%. What is the minimum after-tax rate of return that the company must earn on its investments?

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter10: Decentralization: Responsibility Accounting, Performance Evaluation, And Transfer Pricing

Section: Chapter Questions

Problem 24E: A company had WACC (weighted average cost of capital) equal to 8. % If the company pays off mortgage...

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