The common stock and debt of Northern Sludge are valued at $210 million and $70 million, respectively. Investors currently require a 14% 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 Northern Sludge issues an additional $40 million of common stock and uses this money to retire debt, what is the expected return on the stock? (Round your answer to 4 decimal places.)
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