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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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