The subsequent information is given for Koenig Plc. The before tax rate on debt is 10%, whereas the required return on the equity is 20%. The total amount in employ (equity + debt), V, is Rs 2 million. Of that Rs. 1.4 million represents the market value of its equity and Rs.600, 000 equals market value of its debt.
Given the firm’s existing set of risky projects compute the rate of return which is demanded by Koenig’s finance providers.