Need help with this financial accounting question Sterling Enterprises is financed with 40% debt, on which it pays 8%interest. What is the expected return on equity if the expected returnon assets is 12%?A. 13.33%B. 14.67%C. 12.86%D. 15.20%

Step 1: Define Return on Equity (ROE) Using Leverage FormulaThe Return on Equity (ROE) measures the…

Answered: Sterling Enterprises is financed with…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter13: Capital Structure Concepts

Section: Chapter Questions

Problem 6P

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Harmony Sego has a tax rate of 21%, the interest rate on debt is 10%, and the WACC is 15%. If the debt ratio is 60% (i.e., the weight on debt), what is the expected rate of return to equity holders? O 12.50% O 22.50% O 25.65% O 21.25%
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Company Y has a target debt to equity ratio of 50%. Currently its book debt to equity ratio is 60% and it expects to revert to the target ratio very soon. The company has an after-tax market cost of debt of 9% and a market cost of equity of 20%. What is the WACC for the company? a. 14.33% b. 13.50% c. 12.33% d. 16.51%
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6. a firm has 5% cost of debt and 10% cost of equity. Market value for bonds is $20m, and $80m for equity. Assuming a 40% tax rate, what is the WACC? 8.72% 9.2% 8.6% 9.0%
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What is the firm's expected ROE?
Gates Appliances has a return-on-assets (investment) ratio of 20 percent. a. If the debt-to-total-assets ratio is 25 percent, what is the return on equity? (Input your answer as a percent rounded to 2 decima) places.) b. If the firm had no debt, what would the return-on-equity ratio be? (Input your answer as a percent rounded to 2 decimal places.)
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A firm had a debt ratio of 0.85. The pretax cost of debt is 8% and the reqiured return on asset is 15.5%. What is the cost of equity if we factorin the firms tax rate of 24%? A) 19.53 B) 18.92 C) 21.57 D) 20.35 E) 20.96
Company Y has a target debt ratio of 55%. Currently its debt ratio is 60% and it expects to revert to the target ratio in the near future. The company has a market cost of equity of 20%. While it has no bonds, it has interest payments of R1 000 000 on liabilities of R10 000 000. Assume the tax rate is 28%. What is the WACC for the company? Ⓒa. 6.36% b. 9.00% c. 12.33% d. 12.96%

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Sterling Enterprises is financed with 40% debt, on which it pays 8% interest. What is the expected return on equity if the expected return on assets is 12%? A. 13.33% B. 14.67% C. 12.86% D. 15.20%