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 50% equity and 50% debt. If the firm can borrow at 7%, what is the return on levered equity?
a) 43%
b) 25%
c) 18%
d) 7%
Answer is A, could you please give me the solution steps?