The common stock and debt of MM Corp. are valued at $50 million and $30 million, respectively. Investors currently require a 16 percent return on the common stock and an 8 percent return on the debt. There are no taxes.

a) Calculate the weighted average cost of capital.

b) If MM issues an additional $10 million of debt and uses this money to retire common stock, what will be the expected return on the stock? Assume that the change in capital structure does not affect the risk of the debt.

I don't understand how to get the answer for b. This is the answer provided on the solution sheet but I don't know how to solve the equation

E=40,D=40 WACC = 13 = (40/80)(8) + (40/80)rE rE = 18%