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13-13 Hubbard's Pet Foods

13-13. Hubbard's Pet Foods is financed 80% by common stock and 20% by bonds. The expected return on the common stock is 12% and the rate of interest on the bonds is 6%. Assuming that the bonds are default- risk- free, draw a graph that shows the expected return of Hubbard's common stock ( r E ) and the expected return on the package of common stock and bonds ( r A ) for different debt- equity ratios.

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For your review, I have attachd a formatted MS Excel spreadsheet containing a graphical representation of the rate of return for Hubbard's Pet Food's stock vs. stock/bond issue.

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