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Somedebt, Inc., has a little debt (wd = 20%) with required return 6%. It is considering restructuring to increase its percentage of debt to wd
Somedebt, Inc., has a little debt (wd = 20%) with required return 6%. It is considering restructuring to increase its percentage of debt to wd = 40%. Its beta is 0.7, the risk-free rate is 5%, the market risk premium is 6%, and if it restructures, the required return on its debt will be 8%. Somedebt's tax rate is 25%.
Using the Hamada equation, calculate Somedebt's unlevered required return and its required return on equity after the recapitalization.
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