Hubbard Industries is a fully-capital company whose shares have an expected return of 10.8%. Hubbard performs a leveraged recapitalization, issuing debt and buying back shares, until its debt-to-equity ratio is 0.65. Due to increased risk, shareholders now expect a return of 16.8%. Assuming there are no taxes and Hubbard's debt is risk-free, what is the interest rate on the debt?

Answer rating: 100% (QA)

i Cost of equity of levered capital Un levered cos... View the full answer