Question
ABC Inc. is an all equity firm that is operating in a perfect capital market. The unlevered cost of equity is 11.9%. The company is
ABC Inc. is an all equity firm that is operating in a perfect capital market. The unlevered cost of equity is 11.9%. The company is going to borrow some money and buy back some its outstanding common stock. Once this transaction is completed the company will be financing 40% of its assets with debt. With this amount of debt the company's cost of debt will be 6.0%.
What will be the company's expected return on equity after the transaction (borrow money, buy back shares) is completed? Your answer should be shown as a percentage and it should be accurate to two decimal places.
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