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linda_us
linda_us, Master's Degree
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Shawhan Supply plans to maintain its optimal capital structure

Resolved Question:

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?

1) 18%
2) 13.0%
3) 10.0%
4) 14.2%
Submitted: 4 years ago.
Category: Business and Finance Homework
Expert:  linda_us replied 4 years ago.
Answer is 2) 13.0%

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Linda
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