7x Problem 13.4 Question Help Consider a simple firm that has the following market value balance sheet: Assets $1 030 Liabilities end equity Debt Equity $420 610 Next year, there are two possible values for its assets, each equally likely: $1 220 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 41% in the firm's debt and 59% 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. If the assets will be worth $1 220 in one year, the expected return on assets will be 18.4 %. (Round to one decimal place.) If the assets will be worth $970 in one year, the expected return on assets will be -5.8 %. (Round to one decimal place.) The expected return on assets will be 6.3 %. (Round to one decimal place.) For a portfolio of 41% debt and 59% equity, the expected return on the debt will be %. (Round to one decimal place.)