Hardmon Enterprises is currently an all-equity firm with an expected return of 13%. It is considering a leveraged recapitation in which it would borrow and repurchase existing shares. Assume perfect capital markets a. Suppose Hardmon borrows to the point that equity ratio is 0.50. With this amount of debt, the debt cost of capital is 5%. What will the expected return of equity be after this transaction? b. Suppose instead Hardmon borrows to the point that is debt-equity ratio is 1.50. With this amount of debt, Hardmon's debt will be much riskier. As a result, the debt cost of capital will be 7%. What will the expected return of equity be in this e. A senior manager argues that is in the best interest of the shareholders to choose the capital structure that leads to the Highest expected retum for the stock. How would you respond to this argument? a. Suppose Hardmon borrows to the point that its debt-guity ratio is 0.50. With this amount of debt. the debt cost of capital is 5%. What will the expected return of equity beater this transaction? If Hardmen borrows to the point that its debt equity ratio is 0.50 and the debt cost of capital is 5%, the expected retumis %. (Pound tone decimal place.) b. Suppose instead Hardmon borrows to the point that is debt-equity rate is 1.50. With this amount of debt, Hardmon's debt will be much As a result, the debt cot of capital will be 7%. What will the expected return of equity be in this If Hardmon borrows to the point that its debt-equity ratio is 1.50 and the debt cost of capital is the expected return is found to one decimal place) e. A senior manager argues that is in the best interest of the shareholders to choose the capital structure that leads to the highest expected return for the stock. How would you respond to this argument? A senior manager argues that it is in the best interest of the shareholders to choose the capital structure that leads to the highest expected return for the stock. How would you respond to this argument? Select the best choice below) O A True, because this will result in a higher market value for the stock B. False returns are higher because risk is higher and the retum fairy compensate for the risk OC. True, because this would also lead to the highest earnings per share OD. False, it is in the best interest of shareholders to choose the capital structure that leads to the lower expected return forth Cink to it your answers