A Company in Germany is financed only with equity and it has a beta equity equal to 1.2. The market return in Germany is 13% and the risk-free rate is 3%. The Company decides to issue perpetual debt to repurchase shares and obtain in this way a leverage ratio D/E = 50%. The required return on this debt is 5%. 

Required:

Determine the cost of equity after the share repurchase has taken place. Assume that there are no taxes in this economy.

Answer rating: 100% (QA)

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