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 increased 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).

answer; /// i believe that the correct answer is ///making it easy to work with the organization;

answer; capital structure decision;

of the three mortgage options that demarco and tanya have to choose from, the balloon payment mortgage would be their best option, over adjustable payment and fixed payment plans.ultimately, the balloon payment plan would save demarco and tanya overall, in interest, would cost less monthly, and they would only have to make these payments for 8 years, opposing to 30 years for adjustable or fixed payment plans. 

overall, demarco and tanya would save $80,811 if they chose balloon payments over fixed payments, and would save $116,711 if they choose balloon payments over adjustable payments. benefits with choosing fixed payments over adjustable payments is that, in the end, the payments will still be $836.30 a month, while with adjustable payments, the initial monthly payments will be $763.38 to $1082.70 a month, ultimately leading to a more costly purchase. benefits with choosing fixed payments over balloon payments are not present. benefits in choosing adjustable payments over is that it has a lower interest rate, and starts with lower monthly payments initially. benefits in choosing adjustable payments over balloon payments include a lower interest rate, and lower initial monthly payments. benefits in choosing balloon payments over fixed payments include lower interest rates, lower overall price, lower monthly payments, takes less time to pay off, and does not require a downpayment. benefits in choosing balloon payments over adjustable payments include, lower monthly payments (when averaged), takes less time to pay off, and lower overall price.

hence, option c, balloon payments, is the best option for demarco and tanya to make this purchase, for it will save them a minimum of $80811, and a maximum of $116,711.