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Consider a zero-growth firm with all earnings paid out as dividends. Book and market value are equal. The firm’s EBIT =$12 million, Tax rate is 40%, Market Risk Premium is 4% and Risk Free Rate 6%. The firm has $30 million of debt, 5% interest rate, and $50 million of equity. What is the required rate of return on the firm’s equity?

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Financial Management, Finance

Category:- Financial Management
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