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Health and Wealth Company Is Financed Entirely by Common Stock

Question 40

Multiple Choice

Health and Wealth Company is financed entirely by common stock that is priced to offer a 15% expected return.If the company repurchases 25% of the common stock and substitutes an equal value of debt yielding 6%,what is the expected return on the common stock after refinancing? (Ignore taxes.)


A) 18.0%
B) 21.0%
C) 15.0%
D) 10.5%

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