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Require rate of return

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Panhandle Faucets (PF) plans to maintain its optimal capital structure of 30% debt, 20% preferred stock, and 50% common stock far into the future. The required return on each component is: debt-10%; preferred stock-11%; and common stock-18%. Assuming a 40% marginal tax rate, what after-tax rate of return must PF earn on its investments if the value of the firm is to remain unchanged?

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Solution Summary

This solution goes through how to calculate the required rate of return for a firm's value to remain unchanged.

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Answer:
Given that,
Weight of debt=30%
Weight of preferred ...

Solution provided by:
Jayant Kumar, MBA
Education
  • MBA, Indian Institute of Finance
  • Bsc, Madras University
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