You own stocks in a consumer product company, and you read in the financial press that a recent bond offering has raised the firms debt equity ratio from 10 percent to 30 percent. The extra debt is for the company to replace some old machines and refurbish the current plant. The board has also declared an increase in the payment of dividends.

1. Discuss the effect of this change on the variability of the firms net income.

2. Discuss how this change would affect your required rate of return on the common stock of the company.

Provide your justification(s) to support your views in the answer space provided.

Each answer should be 3 to 5 pages maximum. Please help to answer the above questions. Thanks