A firm currently has a debt-equity ratio of 0.9. The debt, which is virtually riskless, pays an interest rate of 3 %. The expected rate of return on the equity is 12 %. What is the Weighted-Average Cost of Capital if the firm pays no taxes?

wacc = 7.74

What would happen to the expected rate of return on equity if the firm changed its debt-equity ratio to 0.1? Assume the firm pays no taxes, the cost of debt does not change, and that the original WACC is 7.74 %.

answer this^^ in bold