Sarah is starting an athletic clothing chain and has chosen REI as a comparable. REI has an equity beta of 1.80. REI also has $80M in equity and $40M in debt, which is has a yield of 4%. The expected return of the market is 7% and the risk- free rate is 2%.

This gives us a discount rate of 8.69 %. Now let's say Sarah's firm is made up of $60M in equity and $20M in debt, which is risk-free. What is the expected return on equity for Sarahs company?

PLEASE do NOT use excel. Show work to find the expected return on equity.