Hardmon Enterprises is currently an? all-equity firm with an expected return of 14.8 %. It is considering a leveraged recapitalization in which it would borrow and repurchase 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 5 %. What will be the expected return of equity after this? transaction?