Hubbard does leveraged recapitalization

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Reference no: EM131980595

Hubbard Industries is an all-equity firm whose shares have an expected return of 9.8%.

Hubbard does a leveraged recapitalization, issuing debt and repurchasing stock, until its debt-equity ratio is 0.53. Due to the increased risk, shareholders now expect a return of 14.2%.

Assuming there are no taxes and Hubbard's debt is risk-free, what is the interest rate on the debt?

The interest rate is ---------------------------? (Round to two decimal places.)

Reference no: EM131980595

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