Next year, there are two possible values for its assets, each equally likely: $ 1,220 and $960.

Consider a simple firm that has the following market-value balance sheet: Assets Liabilities & Equity $1,040Debt $420 620 Equity Next year, there are two possible values or its assets, each equa likely $1 220 and 950 lts debt w e e it 49% interest Because all of the cash flows om assets must o 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 40% in the firm's debt and 60% 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 % Round to one decimal place. If the assets will be worth $960 in one year, the expected return on assets will be % Round to one decimal place The expected return on assets will be 1 %. (Round to one decimal place.) For a portfolio of 40% debt and 60% equity, the expected return on the debt will be % Round to one decimal place If the equity will be worth $779.42 in one year, the expected return on equity will be %. (Round to one decimal place. If the equity will be worth $519.42 in one year, the expected return on equity will be % 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 $1,040Debt $420 620 Equity Next year, there are two possible values or its assets, each equa likely $1 220 and 950 lts debt w e e it 49% interest Because all of the cash flows om assets must o 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 40% in the firm's debt and 60% 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 % Round to one decimal place. If the assets will be worth $960 in one year, the expected return on assets will be % Round to one decimal place The expected return on assets will be 1 %. (Round to one decimal place.) For a portfolio of 40% debt and 60% equity, the expected return on the debt will be % Round to one decimal place If the equity will be worth $779.42 in one year, the expected return on equity will be %. (Round to one decimal place. If the equity will be worth $519.42 in one year, the expected return on equity will be % Round to one decimal place. The expected return on equity will be %. (Round to one decimal place.) .)