What happens to the expected return on the stock

Assignment Help Financial Management

Reference no: EM132062721

The common stock and debt of Northern Sludge are valued at $68 million and $32 million, respectively. Investors currently require a return of 16.5% on the common stock and a return of 7.2% on the debt. If Northern Sludge issues an additional $14 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 interest rate on Northern’s debt and that there are no taxes.

New return on equity=?

Reference no: EM132062721

Questions Cloud

Demand for municipal bonds : An increase in the marginal tax rate would likely _____ the demand for municipal bonds and _____ the demand for U.S. government bonds.

What is the impact of inflation on interest rates : How do lenders and borrowers benefit from an amortization schedule? What is The impact of inflation on interest rates.

The theory of bureaucratic behavior : The theory of Bureaucratic Behavior suggests that the objective of a government bureaucracy is to ____.

Property pledged to a lender to guarantee payment : Property pledged to a lender to guarantee payment in the event the borrower defaults is called _____.

What happens to the expected return on the stock : If Northern Sludge issues an additional $14 million of common stock and uses this money to retire debt, what happens to the expected return on the stock?

When forecasting stock market returns : When forecasting stock market returns, the Grinold-Kroner model specifically accounts for all of the following except:

Nominal interest is defined as equal : Most people purchase insurance because they are. Nominal interest is defined as equal to ______.

What is the maximum profit and loss diagram for position : The investor sells a call for $0.50 with a strike price of $40. What is the maximum profit and loss diagram for this position ?

Default free or risk free securities are issued : Default free or risk free securities are issued by _______.

User Account

All Pages