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Expected rate of return on equity

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A firm currently has a debt-equity ratio of 1/4. The debt, which is virtually riskless, pays an interest rate of 8.0%. The expected rate of return on the equity is 14%. What would be the expected rate of return on equity if the firm reduced its debt-equity ratio to 1/5? Assume the firm pays no taxes. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

Reference no: EM132579865

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