Learn and Earn Company Is Financed Entirely by Common Stock

question 52

Multiple Choice

Learn and Earn Company is financed entirely by Common stock that is priced to offer a
20% expected return. If the company repurchases 50% of the stock and substitutes an equal value of debt yielding 8%, what is the expected return on the common stock after refinancing?

• A) 32%
• B) 28%
• C) 20%
• D) None of the above

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