Financial Ratios

where r0 = the required return on the equity of an unlevered firm. rS = the required return on the equity of a levered firm. rB = the pre-tax cost of debt . TC = the corporate tax rate. B/S = the firm’s debt-to-equity ratio. In this problem: r0 = 0.16 rB = 0.10. TC = 0.40. B/S = 2/3. The required return on Mojito’s levered equity is: ................
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