Consider a simple firm that has the following market-value balance sheet: Assets Liabilities end equity $ 1 020 Debt $ 430 Equity 590 Next year, there are two possible values for its assets, each equally likely: $ 1 200 and $ 970. Its debt will be due with 4.8 % interest. Because all of the cash flows from the assets must go to either the debt or the equity, if you hold a portfolio of the debt and equity in the same proportions as the firm's capital structure, your portfolio should earn exactly the expected return on the firm's assets. Show that a portfolio invested 42 % in the firm's debt and 58 % in its equity will have the same expected return as the assets of the firm. That is, show that the firm's pre-tax WACC is the same as the expected return on its assets.