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Hubbard Industries is an all-equity firm whose shares have an expected return of 11%. Hubbard does a leveraged recapitalization, issuing debt and...

Hubbard Industries is an all-equity firm whose shares have an expected return of 11%. Hubbard does a leveraged recapitalization, issuing debt and repurchasing stock, until its debt-equity ratio is 0.67. Due to the increased risk, shareholders now expect a return of 17%. Assuming there are no taxes and Hubbard’s debt is risk free, what is the interest rate on the debt?

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Hubbard Industries is an all-equity firm whose shares have an expected return of 11%. Hubbard does a leveraged
recapitalization, issuing debt and repurchasing stock, until its debt-equity ratio is...

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