What pre-tax interest rate would the company need

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Zeina Inc. has 100 million shares outstanding, trading at $10/share. It is considering borrowing money to get to a 20% debt-to-enterprise value ratio, at which point its beta will be 1.38. At what pre-tax interest rate would the company need to be able to borrow the money for the cost of capital to drop to 8.64% after borrowing? (The marginal tax rate is 40%, the risk-free rate is 3% and the equity risk premium is 5%).

Reference no: EM133327594

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