Well from what I learnt in university it’s all about leverage and nothing to do with risk, since original MM don’t account for bankruptcy (risk). You’re only putting let’s say the company is worth $10. If you invest $10 and the company earns 2 dollars. This mean you get 20% return. Let’s say the company is 50% equity, 50% debt. You put in 5 dollars, but you get 2-Interest (5*interest rate). Since we know cost of debt is always less than cost of capital you return would be higher ([2-5*.19]/5 > 2/10). This means your expected to receive a higher return on your equity.
WHat Steely Dan said is one of the reason why investor want more return, but what I did is why the investor get that extra return (increase in cost of equity).