Trans Corp. has a market value of its common stock at $50 million and a value of debt at $30 million. Investors currently require a 16% return on the common stock and an 8% return on the debt. If Trans Corp. issues an additional $10 million of common stock and uses this money to retire debt, what is the new expected return on the stock? Assume that the change in capital structure does not affect the risk of the debt and that there are no taxes. Hint: An implication of MM Proposition I is that WACC (or) is a constant for a given firm, regardless of the capital structure, when there are no taxes. 16.00% 15.34% 13.00% 14.67%

Trans Corp, has a market value of its common stock at $50 million and a value of debt at $30 million. Investors currently require a 16 return on the common stock and an 8% return on the debt. If Trans Corp. Issues an additional $10 million of common stock and uses this money to retire debt, what is the new expected return on the stock? Assume that the change in capital structure does not affect the risk of the debt and that there are no taxes. Hint: An implication of MM Proposition Iis that WACC (or) is a constant for a elven firm, regardiess of the capital structure, When there are no takes 1600% 15.34% 1300% 14.67x