Determine the rate of return on shareholders

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As the financial controller for KL Incorporated, a highly diversified conglomerate, you are considering the alternative financing plans for the next millennium. Due to the good relationship with the banks, your firm is able to obtain loan at a favorable rate of 8%.

The plans are as follows:

70 % equity financing and 30% debt financing

50% equity financing and 50% debt financing

Determine the rate of return on shareholders' capital for each of the financing alternatives if the rate of return on assets turned out to be as follows:

a) 20%

b) -24%

Reference no: EM132124458

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