Question 3-9: for reporting purposes, management prefers higher profits; for tax purposes, lower taxable income is desired. to meet these goals, firms often use different methods of deprecation for tax and reporting purposes. which deprecation method is best for reporting and which for tax purposes in the short run?

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.