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What is the expected return on the stock for northern sludge

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The common stock and debt of Northern Sludge are valued at $160 million and $40 million, respectively. Investors require a 16return on the common stock and an 7% return on the debt. Assume that the change in capital structure does not affect the risk of the debt and that there are no taxes.

Problem 1: If Northern Sludge issues an additional $15 million of common stock and uses this money to retire debt what is the expected return on the stock?

Reference no: EM132794492

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