Let's assume there are no taxes. Suppose the WACC is 12%. The debt ratio (i.e., weight on debt) is 60%. The interest rate is 7%. What is the expected return on equity?
Weight of equity=100-60=40%
WACC=Respective weight*Respective return
12=(0.6*7)+(0.4*Return on equity)
Return on equity=(12-4.2)/0.4
=19.5%
Let's assume there are no taxes. Suppose the WACC is 12%. The debt ratio (i.e., weight...
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answer second part of question below
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