Problem regarding the required equity rate of return, Accounting Basics

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Problem regarding the required equity rate of return

Question: Branston Soda Company manufactures soda. In 20x0, Branston earned $12.0 million in operating income and had total capital of $74 million. Branston's total capital is 65 percent equity and 35 percent 10-year bonds paying 4 percent interest. Branston's marginal tax rate is 25 percent. The company's CFO believes 16 percent is an appropriate required equity rate of return.

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