### Calculate the required return on equity for this firm

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A firm has 500,000 shares of stock outstanding with a par value of \$1 per share and debt outstanding with a par value of \$1,000,000. The stock is selling for \$10 per share, and the debt is selling at a discount (90% of par). If the firm were financed with all equity, the cost capital would be 12%; the yield to maturity on the firm's debt is 8%. The corporate tax rate is 34%. Calculate the required return on equity for this firm.

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