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Hubbard Industries is anall-equity firm whose shares have an expected return of 9.6 %. Hubbard does a leveragedrecapitalization, issuing debt and repurchasingstock, until itsdebt-equity ratio

Hubbard Industries is anall-equity firm whose shares have an expected return of 9.6 %. Hubbard does a leveragedrecapitalization, issuing debt and repurchasingstock, until itsdebt-equity ratio is 0.51. Due to the increasedrisk, shareholders now expect a return of 13.8 %

Assuming there are no taxes andHubbard's debt isrisk-free, what is the interest rate on thedebt?

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