Leveraged recapitalization-issuing debt-repurchasing stock

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Hubbard Industires is an all-equity firm whose shares have an expected return of 9.9%. Hubbard does a leveraged recapitalization, issuing debt and repurchasing stock, until its debt-equity ratio is 0.54. Due to the increased risk, shareholders now expect a return of 14.5%. Assuming there are no taxes and Hubbard's debt is risk-free, what is the interst rate on the debt?

Reference no: EM131023253

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