What is the expected rate of return on debt

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Reference no: EM132062811

Consider a company with book value of assets equal to 100. Suppose expected net operating income (NOI) is 10, contractual interest payments on debt are 3, and expected net income 70.

(a) If the company is 50% financed with debt and 50% with equity, what is the expected rate of return on debt?

(b) If the company is 50% financed with debt and 50% with equity, what is the expected rate of return on equity?

Reference no: EM132062811

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