Question: Please help me solve questions A,B,C. I will leave a thumbs up!! Hardmon Enterprises is currently an all-equity firm with an expected return of 18.1%.
Hardmon Enterprises is currently an all-equity firm with an expected return of 18.1%. It is considering borrowing money to buy back some of its existing shares. Assume perfect capital markets. a. Suppose Hardmon borrows to the point that its debt-equity ratio is 0.50. With this amount of debt, the debt cost of capital is 6% What will be the expected return of equity after this transaction? b. Suppose instead Hardmon borrows to the point that its debt-equity ratio is 1.50. With this amount of debt, Hardmon's debt will be much riskier. As a result, the debt cost of capital will be 8%. What will be the expected return of equity in this case? C. A senior manager argues that it is in the best interest of the shareholders to choose the capital structure that leads to the highest
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