$/$ A firm currently has a debt$-$equity ratio of $1/3.$ The debt, which is virtually riskless, pays an interest rate of $6\mathrm{.}4\%.$ The expected rate of return on the equity is $12\%.$ What would be the expected rate of return on equity if the firm reduced its debt$-$equity ratio to $1/4?$ Assume the firm pays no taxes.

Hint: First find the Return on Assets $($WACC assuming no debt$)$ which is expected to stay constant when the debt is risk$-$free $($not realistic$)$ and when there is no tax benefit of interest expense. Once you solve for the ROA, then find the new ROE. If debt is added, the ROE should increase $($or decrease if debt is reduced$).$