How JustAnswer Works:
  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.
Ask Falak Naz Your Own Question
Falak Naz
Falak Naz, Accountant
Category: Finance
Satisfied Customers: 532
Experience:  I am a qualified Chartered Accountant. Currently i am working in financial institution.
Type Your Finance Question Here...
Falak Naz is online now
A new question is answered every 9 seconds

Shawhan Supply plans to maintain its optimal capital structure

This answer was rated:

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-16%. 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?

a. 10%
b. 12%
c. 14%
d. 16%



We need to compute WACC to determine the required rate of return

= Cost of debt X weight of debt + cost of Preferred X weight + cost of equity X weight


= 10%(1-40%) X 30% + 11% X 20% +16% X 50%


= 1.8 + 2.2 + 8


= 12% Choice b

Falak Naz and other Finance Specialists are ready to help you

Related Finance Questions