Spolier Sample Exam 1 - Question regarding calculating retur invested, borrowed, regarding, why

joemoran

Had a quick question. On the sample, I had calculated the return by taking the total invested amount $100 * 7.4% and subtracted out the cost of borrowed funds ($40 * 4.25%) and divided the sum by the total equity of $60 ( I used 100 as the total portfolio).
(7.40 - 1.70) / (60) = 9.5%
Can someone explain why this is wrong.
The answer key stated it was 8.66%