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What is simmons return on levered equity

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Simmons Inc. has an expected net income of 4 million Euros at the end of the year. The company is currently all equity financed but it is planning to buy back equity and undertake some debt so that the debtto-equity ratio will become 0.5. The debt-to-equity ratio will be kept constant. The assets will be fully depreciated in the next three years, with annual depreciation installments of 1,000,000 Euro each. The company does not plan to acquire any asset. The expected return on unlevered equity for Simmons is 9.25% and the cost of debt is 5.25%. The tax rate on corporate earnings is 32%. What is Simmons' return on levered equity after the debt issuance?

Reference no: EM132412404

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