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Part Five Debt and Payout Policy 9 Leverage and the Cost of Capital. The common stock and debt of Northern Sludge are valed 10 million of common stock and uses this money to retire debt, what happens to the expected both the cost of at S70 million and S30 million, respectively. Investors currently require a 16% return the common stock and an 8% return on the debt. If Northern Sludge issues an on additional stock? Assume that the change in capital structure does not affect the interest r on Northern's debt and that there are no taxes. (LO16-D cost of equity ( 10 Leverage and the Cost of Capital. "Increasing financial leverage increases So the overall cost of capital cannot stay costa that the speaker is confused. Buggins Inc. is financed equaly The cost of debt is 5%, and the cost hr and uses the