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i I need help on the expected return on equity.... thank you Consider a simple firm that has the following market-value balance sheet: Assets Liabilities

image text in transcribedi I need help on the expected return on equity.... thank you

Consider a simple firm that has the following market-value balance sheet: Assets Liabilities & Equity Debt $440 Equity 570 $1,010 Next year, there are two possible values for its assets, each equally likely: $1,220 and $960. Its debt will be due with 5.2% interest. Because all of the cash flows from the assets must go either to 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 44% in the firm's debt and 56% in its equity will have the same expected return as the assets of the firm. That is, show that the firm's WACC is the same as the expected return on its assets. If the assets will be worth $1,220 in one year, the expected return on assets will be 20.8 %. (Round to one decimal place.) If the assets will be worth $960 in one year, the expected return on assets will be - 4.9 %. (Round to one decimal place.) The expected return on assets will be 8%. (Round to one decimal place.) For a portfolio of 44% debt and 56% equity, the expected return on the debt will be 5.2 %. (Round to one decimal place.) If the equity will be worth $757. 12 in one year, the expected return on equity will be 32.8%. (Round to one decimal place.) If the equity will be worth $497.12 in one year, the expected return on equity will be - 12.7 %. (Round to one decimal place.) The expected return on equity will be %. (Round to one decimal place.) Consider a simple firm that has the following market-value balance sheet: Assets Liabilities & Equity Debt $440 Equity 570 $1,010 Next year, there are two possible values for its assets, each equally likely: $1,220 and $960. Its debt will be due with 5.2% interest. Because all of the cash flows from the assets must go either to 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 44% in the firm's debt and 56% in its equity will have the same expected return as the assets of the firm. That is, show that the firm's WACC is the same as the expected return on its assets. If the assets will be worth $1,220 in one year, the expected return on assets will be 20.8 %. (Round to one decimal place.) If the assets will be worth $960 in one year, the expected return on assets will be - 4.9 %. (Round to one decimal place.) The expected return on assets will be 8%. (Round to one decimal place.) For a portfolio of 44% debt and 56% equity, the expected return on the debt will be 5.2 %. (Round to one decimal place.) If the equity will be worth $757. 12 in one year, the expected return on equity will be 32.8%. (Round to one decimal place.) If the equity will be worth $497.12 in one year, the expected return on equity will be - 12.7 %. (Round to one decimal place.) The expected return on equity will be %. (Round to one decimal place.)

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