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Suppose a company that is currently all-equity and its shares have an expected return of 12,24%. This firm undergoes a leveraged recapitalization, where it issues
Suppose a company that is currently all-equity and its shares have an expected return of 12,24%. This firm undergoes a leveraged recapitalization, where it issues debt and repurchases stock until its debt-equity ratio is 0,45. Due to the increased risk, shareholders now expect a return of 14%. Assuming there are no taxes and the firm's debt is risk-free, what is the interest rate on the debt?
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