The firm's tax rate is 34%. The firm's pre-tax cost of debt is 8%; the firm's debt-to-equity ratio is 3; the risk-free rate is 3%; the beta of the firm's common stock is 1.5; the market risk premium is 9%. What is the required return on assets?
The feedback I was given is: 16.5% = rasset + 3 × [rasset – rdebt] × (1–.34)
rasset = 10.85%.
The ANS: 10.85%
Where does 16.5% come from? What does rdebt equal? Basically I need all the steps to solve this equation.