What happens to the expected return on the stock

Assignment Help Financial Management
Reference no: EM131530825

The common stock and debt of Northern Sludge are valued at $60 million and $40 million, respectively. Investors currently require a return of 17.0% on the common stock and 7.0% on the debt. If Northern Sludge issues an additional $24 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.)

New return on equity %

Reference no: EM131530825

Questions Cloud

What is the modified duration of the bond : A bond with 3 years to maturity and 9% coupon rate is selling at YTM of 11%. The bond has a face value of $1000. What is the modified duration of the bond?
Based on the annual worth method of study : Your study period is 6 years and your MARR = 20%. Based on the annual worth (Aw) method of study, which motor should you buy and buy how much?
Value at risk for the portfolio : What is the three day 99% value at risk for the portfolio?
Calculate total risk weighted assets : Calculate GlobalBankCrédit Financial Holdings PLC’s total risk weighted assets.
What happens to the expected return on the stock : If Northern Sludge issues an additional $24 million of common stock and uses this money to retire debt, what happens to the expected return on the stock?
What is the firm after-tax cost of debt : what is the firm's after-tax cost of debt?
Affect the decision-making process : In equipment-replacement decisions, which one of the following does not affect the decision-making process?
Would turning back the odometer be an ethical action : Perkins intended to sell his two-year- old automoblie through an advisement online. Would turning back the odometer be an ethical action?
The operating expenses are fixed costs and P-E ratio : Assume that the operating expenses are fixed costs and P/E ratio based on the current market price per share.

Reviews

Write a Review

Financial Management Questions & Answers

  What is the target stock price in one year

You have found the following historical information for the Daniela Company: Year 1 Year 2 Year 3 Year 4 Stock price $49.50 $58.12 $67.34 $60.25 EPS 2.40 2.58 2.71 2.85 Earnings are expected to grow at 11 percent for the next year. Required: Using th..

  Provide useful information to investors

What are CDS?- What does it mean to say that there was a "run-up of the price for buying CDS protection against [Greece's] default"?

  Holmes aircraft recently announced increase in net income

Holmes Aircraft recently announced an increase in its net income, yet its net cash flow declined relative to last year. Which of the following could explain this performance?

  Develop a blast design for the project

Develop a blast design for the project. - what is the cost per cubic of rock if the ANFO is $0.166 per Ib, and dynamite $1.272 per lb?

  What is the degree of operating leverage

At an output level of 50,000 units, you calculate that the degree of operating leverage is 3.50. Suppose fixed costs are $290,000. What is the operating cash flow at 44,000 units? What is the degree of operating leverage?

  What annual rate of return has this investor earned

What annual rate of return has this investor earned?

  Compute the percentage total return and dividend yield

Suppose a stock had an initial price of $98 per share, paid a dividend of $2.90 per share during the year, and had an ending share price of $78.50. Compute the percentage total return. What was the dividend yield? What was the capital gains yield?

  Business reported the changes in working capital

A house painting business had revenues of $17,600 and expenses of $10,600 last summer. There were no depreciation expenses. However, the business reported the following changes in working capital:

  What price does the dividend-discount model predict

what price does the dividend-discount model predict Colgate stock should sell for today?

  How much profit can you earn using triangle arbitrage

Currently, you can exchange $1 for 105 yen or €0.74 in New York. In Tokyo, the exchange rate is ¥1 = €0.0075. If you have $1,000, how much profit can you earn using triangle arbitrage?

  Examples of possible distortion in reported income

All of the following are common examples of possible distortion in reported income except

  What is estimate of stocks current value

Agarwal Technologies was founded 10 years ago. It has been profitable for the last 5 years, but it has needed all of its earnings to support growth and thus has never paid a dividend. Assuming a required return of 11.00%, what is your estimate of the..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd