Provide solution for these financial accounting question XYZ Inc. has a debt to equity ratio of 0.5,$20 000 of debt with an interest rate of5%, 10 000 shares outstanding, a 10%expected returns on assets, and a 30% taxrate. Assuming a constant amount ofdebt, compute the expected return ofequity.

Given:Debt to equity ratio (D/E) = 0.5Debt (D) = $20,000Interest rate on debt (Rd) = 5%Expected…

Answered: XYZ Inc. has a debt to equity ratio of…

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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XYZ Inc. has a debt to equity ratio of 0.5, $20 000 of debt with an interest rate of 5%, 10 000 shares outstanding, a 10% expected returns on assets, and a 30% tax rate. Assuming a constant amount of debt, compute the expected return of equity.