A New Business Requires a $20,000 Investment Today,and Will Generate

Multiple Choice

A new business requires a $20,000 investment today,and will generate a one-time cash flow of $25,000 after one year.The business will be financed with 20% equity and 80% debt.If the firm can borrow at 4%,what is the return on levered equity?

A) 25%
B) 21%
C) 109%
D) 125%
E) 33%