exam q

[erichandley]

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%?

[dr b]

Since the WACC is the simple average of the cost of equity and after tax cost of debt, the firm must be using equal parts debt and equity.

[factor-fiction]

That's odd erichandley, I was wondering the same thing too.