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Posted by: Homeworkhelp
Price Quoted by Student: $2
Posted On: 2010-11-22 06:06:00

Equity Return and Leverage. The common stock and debt of Northern Sludge are valued at $70 million and $30 million, respectively. Investors currently require a 16 percent return on the common stock and an 8 percent return on the debt. If Northern Sludge issues an additional $10 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 that there are no taxes.

SOLUTION If equity capital increases and debt dec
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Attachment 1: Equity Return and Leverage.doc
Solution Posted By: Homeworkhelp    Posted on: 22-11-2010