2. Hereford Company Hereford has 60 million shares of common stock outstanding, and the price per share is $6.00; there is also $300 million worth of risk-free debt outstanding. The risk-free rate of interest is 4%, and the expected return on Hereford's common stock is 12%. Suppose some unexpected bad news causes Hereford's stock price to fall to $3.00 per share. The value of the debt remains the same, and the debt remains risk-free. What will be the new cost of equity capital? Assume perfect markets