Question
In: Finance
Consider a project with free cash flows in one year of $143,429 or $190,456, with each...
Consider a project with free cash flows in one year of $143,429 or $190,456, with each outcome being equally likely. The initial investment required for the project is $106,859, and the project's cost of capital is 23 %. The risk-free interest rate is 6 %.
a. What is the NPV of this project?
b. Suppose that to raise the funds for the initial investment, the project is sold to investors as an all-equity firm. The equity holders will receive the cash flows of the project in one year. How much money can be raised in this way - that is, what is the initial market value of the unlevered equity?
c. Suppose the initial $106,859 is instead raised by borrowing at the risk-free interest rate. What are the cash flows of the levered equity, what is its initial value and what is the initial equity according to MM?
*****please show work*****
Solutions
jeff jeffy answered 1 year agoRelated Solutions
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