You sit on the board of a public corporation. your ceo has proposed taking steps to offset the carbon impact of your company's manufacturing process. doing so will add to the company's overall expenses. your ceo argues, however, that this action will actually increase the stock price, maximizing shareholder wealth. why might socially-responsible activities also be value-maximizing?

The common stock and debt of northern sludge are valued at $65 million and $35 million, respectively. investors currently require a return of 15.9% on the common stock and a return of 7.8% 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.