Hubbard's Pet Foods is financed 70% by common stock and 30% by bonds. The expected return on the common stock is 12% and the rate of interest on the bonds is 6%. Assume that the bonds are default-free 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 40% equity and 60% debt.

If the debt is still default - free , what happens to the expected rate of return on equity' ? ( Round your answer to 2 decimal places . ) Expected rate of return on equity What happens to the expected return on the package of common stock and bonds ? ( Round your answer to 2 decimal places .\\ Expected return on the package of common stock and bonds