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Debt financing, debt-equity ratio

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What is the proportion of debt financing for a firm that expects a 24% return on equity, a 16% return on assets, and a 12% return on debt? Ignore taxes.
A) 54.0%
B) 60.0%
C) 66.7%
D) 75.0%

A firm has an expected return on equity of 16% and an after-tax cost of debt of 8%. What debt-equity ratio should be used in order to keep the WACC at 12%?
A) .50
B) .75
C) 1.00
D) 1.50

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Answers and explanations to 2 multiple choice questions on proportion of debt financing, debt-equity ratio

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What is the proportion of debt financing for a firm that expects a 24% return on equity, a 16% return on assets, and a 12% return on debt?  Ignore taxes.
A) 54.0%
B) 60.0%
C) 66.7%
D) 75.0%

Answer: C) 66.7%
WACC= Return on assets = wE * Cost of ...

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