Question
Hubbard Industries is an all-equity firm whose shares have an expected return of 11.1%. Hubbard does a leveraged recapitalization, issuing debt and repurchasing stock until
Hubbard Industries is an all-equity firm whose shares have an expected return of 11.1%. Hubbard does a leveraged recapitalization, issuing debt and repurchasing stock until its debt-equity ratio is 0.69. Due to the increased risk, shareholders now expect a return of 17.7%. Assuming there are no taxes and Hubbard's debt is risk-free, what is the interest rate on the debt?
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Answer Interest rate on the debt is 154 Let the i...
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Financial Accounting an introduction to concepts, methods and uses
Authors: Clyde P. Stickney, Roman L. Weil, Katherine Schipper, Jennifer Francis
13th Edition
978-0538776080, 324651147, 538776080, 9780324651140, 978-0324789003
