Problem 16-17 Leverage and Capital Costs (LO2) Hubbard's Pet Foods is financed 70% by common stock and 30% by bonds. The expected return on the common stock is 14% and the rate of interest on the bonds is 7%. 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 %