Tax rate of return must the firm earn on its investments

Reference no: EM13903883

Beauty Inc. plans tomaintain its optimal capital structure of 40 percent debt, 10 percent preferredstock, and 50 percent common equity indefinitely. The required return on each componentsource of capital is as follows: debt--8 percent; preferred stock--12 percent;common equity--16 percent. Assuming a 40 percent marginal tax rate, whatafter-tax rate of return must the firm earn on its investments if the value ofthe firm is to remain unchanged?<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

Reference no: EM13903883

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