Business, 04.07.2020 22:01 kayladvine

The common stock and debt of Northern Sludge are valued at $50 million and $30 million, respectively. Investors currently require a 16% return on the firm’s common stock and 8% on its debt. If Northern Sludge issues an additional $10 million of common stock and uses this money to retire (i. e., to pay back) debt, what is the expected return on its common stock? Assume first that the change in capital structure does not affect the risk of the debt. Suppose next that the change in capital structure decreased the risk of the debt. Would your previous answer then under- or overstate the effect on the expected return on the firm’s common stock? [Assume throughout that the MM assumptions hold (i. e., no taxes, no costs of financial distress)]

Answers: 2

Show answers

Other questions on the subject: Business

Business, 21.06.2019 19:50, Pookaapoo8832

Which of the following best describes the economic effect that results when the government increases interest rates and restricts the lending of money? a. borrowing money becomes more expensive and there is less investment in production. b. the economy grows as investments result in larger profits. c. government spending drives up prices because of greater competition for goods and services. d. consumers save more money and spend less buying goods and services.

Answers: 2

continue

Business, 22.06.2019 01:50, jjaheimhicks3419

Amanda rice has just arranged to purchase a $640,000 vacation home in the bahamas with a 20 percent down payment. the mortgage has a 7 percent apr compounded monthly and calls for equal monthly payments over the next 30 years. her first payment will be due one month from now. however, the mortgage has an eight-year balloon payment, meaning that the balance of the loan must be paid off at the end of year 8. there were no other transaction costs or finance charges. how much will amanda’s balloon payment be in eight years

Answers: 3

continue

Business, 22.06.2019 10:30, natajaeecarr

Jack manufacturing company had beginning work in process inventory of $8,000. during the period, jack transferred $34,000 of raw materials to work in process. labor costs amounted to $41,000 and overhead amounted to $36,000. if the ending balance in work in process inventory was $12,000, what was the amount transferred to finished goods inventory?

Answers: 2

continue

Business, 22.06.2019 10:50, hsjsjsjdjjd

Suppose that a firm is considering moving from a batch process to an assembly-line process to better meet evolving market needs. what concerns might the following functions have about this proposed process change: marketing, finance, human resources, accounting, and information systems?

Answers: 2

continue

You know the right answer?

The common stock and debt of Northern Sludge are valued at $50 million and $30 million, respectively...