Hubbards Pet Foods is financed 40% by common stock and 60% by bonds. The expected return on the common stock is 11.5%, and the rate of interest on the bonds is 6.5%. Assume that the bonds are default-free and that there are no taxes. Now assume that Hubbards issues more debt and uses the proceeds to retire equity. The new financing mix is 32% equity and 68% debt. Assume the debt is still default free.

a. Given the initial capital structure, calculate the expected return on assets. (Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place.)

b. Given the revised capital structure, calculate the expected rate of return on equity. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)