Adam strongly believes that his employees have a positive attitude toward their work. He sees in them a potential to take risks and a greater capacity for imagination and creativity if motivated by rewards. In this scenario, Adam's views about his employees are consistent with the assumptions of .

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.