Assume a perfect world (so without corporate tax). A firm 's fully financed with equity. The required rate of return on equity is 18%. Suppose the firm repurchases 35% of equity and replaces it with an annual amount of debt. The Interest costs of debt are 4% per annum. What is the expected return on equity after this recapitalization?

Answer rating: 100% (QA)

Before the recapitalization the firm is fully financed with equity so the cost of ... View the full answer