Hubbard Industries is an all-equity firm whose shares have an expected return of 10%. Hubbard does a
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Hubbard Industries is an all-equity firm whose shares have an expected return of 10%. Hubbard does a leveraged recapitalization, issuing debt and repurchasing stock, until its debt-equity ratio is 0.60. Due to the increased risk, shareholders now expect a return of 13%. Assuming there are no taxes and Hubbard’s debt is risk free, what is the interest rate on the debt?
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