Question

You plan to invest ​$109650​, borrowing 57​% of the money​ ($62500.5​) from a​ friend, so that you will put up ​$47149.5 of your own money. The cost of debt​ (interest rate on the​ loan) is 12.18​% and there are no taxes or transaction costs. With the​ arrangement, you expect a return of 20.3​% on your equity investment. What would be your expected rate of return without the​ debt? That​ is, what rate of return would you expect to earn on your money if the entire ​$109650 was your own​ money? ​ (Percent with 2​ decimals.)

Answer 1

What would be your expected rate of return without the​ debt?

ru=(rl+rd*d/e*(1-t))/(1+d/e*(1-t))
=(20.3%+12.18%*57%/43%)/(1+57%/43%)
=15.672%