Consider a simple firm that has the following​ market-value balance​ sheet: Assets Liabilities end equity $1 010 Debt $4

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Consider a simple firm that has the following​ market-value
balance​ sheet:
Assets
Liabilities end equity
$1 010
Debt
$450
Equity
560
Next​ year, there are two possible values for
its​ assets, each equally​ likely:
$1 200
and
$970.
Its debt will be due with
5.1%
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
45%
in the​ firm's debt and
55%
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
$1 200
in one​ year, the expected return on assets will be
18.818.8​%.
​(Round to one decimal​ place.)If the assets will be
worth
$970
in one​ year, the expected return on assets will be
negative 4.0−4.0​%.
​(Round to one decimal​ place.)The expected return on
assets will be

Consider A Simple Firm That Has The Following Market Value Balance Sheet Assets Liabilities End Equity 1 010 Debt 4 1 (143.16 KiB) Viewed 203 times

For a portfolio of 45% debt and 55% ​equity,
the expected return on the debt will be______​%.​ (Round to
one decimal​ place.)
Consider a simple firm that has the following market value balance sheet: Assets $1 010 Liabilities end equity Debt Equity $450 560 Next year, there are two possible values for its assets, each equally likely: $1 200 and $970. Its debt will be due with 5.1% 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 45% in the firm's debt and 55% 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 $1 200 in one year, the expected return on assets will be 18.8 %. (Round to one decimal place.) If the assets will be worth $970 in one year, the expected return on assets will be - 4.0 %. (Round to one decimal place.) The expected return on assets will be 7. %. (Round to one decimal place.) For a portfolio of 45% debt and 55% equity, the expected return on the debt will be %. (Round to one decimal place.)