Question Firm XYZ has the following market value balance sheet: Debt value = 75 Asset value = 200 Equity value = 125 Asset value = 200 Firm value = 200 If investors expect a return of 7% on the debt, and the firm's average cost of capital is 10.5% (on projects that have the same risk as the firm's existing business), what is the expected return on Firm XYZ's equity? Assume no taxes. Possible Answers A Less than 11% B At least 11%, but less than 12% At least 12%, but less than 13% D At least 13%, but less than 14%. E 14% or more