Capital structure does not affect the risk of the debt

Assignment Help Financial Management

Reference no: EM131591748

The common stock and debt of Northern Sludge are valued at $75 million and $25 million, respectively. Investors currently require a return of 16.1% on the common stock and 7.6% on the debt. If Northern Sludge issues an additional $12 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.

New return on equity will be.

Reference no: EM131591748

Questions Cloud

What ethical issues arise with use of information systems : Information is data that is framed in a specific context. What ethical, social, and political issues arise with the use of information systems?

Employment tests-hiring and promotion decisions : Using the e-Activity, choose two (2) of the following employment tests: drug tests, medical examinations, polygraphs or honesty tests

Determine the amounts that should be debited to land : (Treatment of Various Costs) Ben Sisko Supply Company, a newly formed corporation, incurred the following expenditures related to Land, to Buildings.

Alternative methods of selling : Give examples of each of the alternative methods of selling. Explain how you will sell the your chosen products in the chosen method.

Capital structure does not affect the risk of the debt : Assume that the change in capital structure does not affect the risk of the debt and that there are no taxes.

Compute the number of units remaining : Compute both the cost of goods available for sale and the number of units available for sale. Compute the number of units remaining in the ending inventory

Business with other cultures : 1) Describe these cultures: South/Southeast Asia, Middle-East, and Latin America.

Write a class called square that is child class of rectangle : Write a class called Square that is a child class of Rectangle. A square is a rectangle with equal sides. It should inherit the perimeter() and area() methods.

Explain the expected outcomes of the project : Describe the proposed solution (or intervention) for the problem and the way(s) in which it is consistent with current evidence.

User Account

All Pages