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A new business requires a $20,000 investment today and will generate aone-time cash flow of $25,000 after one year. The business will be financed with50%

A new business requires a $20,000 investment today and will generate aone-time cash flow of $25,000 after one year. The business will be financed with50% equity and50% debt. If the firm can borrow at7%, what is the return on leveredequity?

43%

18%

39%

25%

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