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The common stock and debt of Northern Sludge are valued at $50 million and $20 million,...

The common stock and debt of Northern Sludge are valued at $50 million and $20 million, respectively. Investors currently require a return of 18% on the common stock and a return of 10% on the debt.

If Northern Sludge issues an additional $5 million of common stock and uses this money to retire debt, what happens to the expected return on the stock? Assume that the change in capital structure does not affect the risk of the debt and that there are no taxes. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

Expected stock return %

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jeff jeffy answered 1 year ago
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