Question: question #58 Equity Return and Leverage The common stock and debt of Sheridan Shoes are valued at $200 million and $50 million, respectively. Investors

question #58 Equity Return and Leverage The common stock and debt of

question #58 Equity Return and Leverage The common stock and debt of Sheridan Shoes are valued at $200 million and $50 million, respectively. Investors currently require a 15% return on the common stock and an 8% return on the debt. Assume that the change in capital structure does not affect the risk of the debt and that there are no taxes. If Sheridan Shoes issues an additional $40 million of common stock and uses this money to retire debt, what is the expected return on the stock? (IMPORTANT - PLEASE PERFORM CALCULATIONS TO 4 PLACES AND EXPRESS YOUR ANSWER AS A NUMBER TO 4 PLACES - FOR EXAMPLE, WRITE .2012 (RATHER THAN 201211 or 20.12%) References

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