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Hubbard's Pet Foods is financed 6 0 % by common stock and 4 0 % by bonds. The expected return on the common stock is
Hubbard's Pet Foods is financed by common stock and by bonds. The expected return on the common stock is and
the rate of interest on the bonds is Assume that the bonds are defaultfree and that there are no taxes. Now assume that
Hubbard's issues more debt and uses the proceeds to retire equity. The new financing mix is equity and debt. Assume the
debt is still default free.
a Given the initial capital structure, calculate the expected return on equity.
Note: Do not round intermediate calculations. Enter your answer as a percent rounded to decimal place.
Answer is complete but not entirely correct.
b Given the revised capital structure, calculate the expected rate of return on equity.
Note: Do not round intermediate calculations. Enter your answer as a percent rounded to decimal places.
Answer is complete but not entirely correct.
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