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Question 2 - Debt Issuance (15 points) SternCorp is financed entirely by equity that is priced to offer a 10% expected return on equity. If

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Question 2 - Debt Issuance (15 points) SternCorp is financed entirely by equity that is priced to offer a 10% expected return on equity. If the company repurchases 50% of equity and substitutes an equal value of debt yielding 7%, what is the expected return on equity after refinancing? (Note: Ignore taxes and cost of financial distress)

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