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traction corporation required rate of return

3. Given that the traction corporation has a 40% debt, 60% equity capital structure and its WACC is 9.96%, find the required rate of return on equity. It is mentioned that the cost of debt before tax equals 9%, the tax rate is 40%. (Points: 2)
11.06%
13%
14.89%
8%
The information given is not sufficient to answer the question.

4. What effect will an increase in tax rate for a company have on the WACC? Assume that everything else remains the same.

(Points: 2)
It will reduce the WACC
It will increase the WACC
It will have absolutely no effect
It will first increase WACC, then decrease it.

Solution Preview

3. Given that the traction corporation has a 40% debt, 60% equity capital structure and its WACC is 9.96%, find the required rate of return on equity. It is mentioned that the cost of debt before tax equals 9%, the tax rate is 40%. (Points: 2) ...

Solution Summary

The expert examines traction corporation for required rate of returns. Traction corporation on equity is given.

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