Question: Take the same numbers as shown in the previous exercise, but assume that debt is 42% of equity. What is the necessary rate of return

Take the same numbers as shown in the previous exercise, but assume that debt is 42% of equity. What is the necessary rate of return to make the investment worthwhile? Explain why this rate of return differs from the answer to the previous exercise. Based on the variation of WACC as a function of the firm's debtequity ratio, can you think of any criticism of the WACC formula? Explain.

Data from in previous Exercise

A telecom company is considering investing in South Africa. Here are the data necessary to calculate the rate of return. The debt is 71% of equity. The risk-free rate of interest is 8%, the country premium is 12%, the return on equity is 18%, the return on debt is 11%, and the tax rate is equal to 0. Calculate the rate of return on the investment that would make it worthwhile to an investor.

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