The debt and common stock of Western Furniture, Inc are valued at $30 million and $50 million, respectively. Investors currently require a 15% return on the common stock and a 11% return on the debt. Suppose the company issues an additional $10 million of debt and uses this money to repurchase $10 million of stock. Assume that the change in capital structure does not affect the risk of the debt and that there are no taxes.

What is the weighted average cost of capital after the change in capital structure? (sample answer:10.50%) What happens to the expected return on the stock after the change in capital structure? (sample answer:10.50%)