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Lindoro Industries is an all-equity firm whose shares have an expected return of 17%. Lindoro does a leveraged recapitalization, issuing debt and repurchasing stock, until
Lindoro Industries is an all-equity firm whose shares have an expected return of 17%. Lindoro does a leveraged recapitalization, issuing debt and repurchasing stock, until its debt-equity ratio is 0.4. After the recapitalization, shareholders now expect a return on equity of 10%. Assuming there are no taxes, what is the interest rate on the debt? Write the answer as a percent, with two decimals. (Acceptable error = 0.50%)
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