Acort Industries owns assets that will have an 75% probability of having a market value of...

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Acort Industries owns assets that will have an 75% probabilityof having a market value of $48 million in one year from now. Thereis a 25% chance that the assets will be worth only $18 million. Thecurrent risk-free rate is 5%, and Acort’s assets have a cost ofcapital of 10%.
a) If Acort is unlevered, what is the current market value ofits equity?
b) Suppose instead that Acort has debt with a face value of $18million due in one year. According to MM, what is the value ofAcort’s equity in this case?
c) What is the expected return of Acort’s equity withoutleverage? What is the expected return of Acort’s equity withleverage?
d) What is the lowest possible realized return of Acort’s equitywith and without leverage?

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Acort Industries owns assets that will have an 75% probabilityof having a market value of $48 million in one year from now. Thereis a 25% chance that the assets will be worth only $18 million. Thecurrent risk-free rate is 5%, and Acort’s assets have a cost ofcapital of 10%.a) If Acort is unlevered, what is the current market value ofits equity?b) Suppose instead that Acort has debt with a face value of $18million due in one year. According to MM, what is the value ofAcort’s equity in this case?c) What is the expected return of Acort’s equity withoutleverage? What is the expected return of Acort’s equity withleverage?d) What is the lowest possible realized return of Acort’s equitywith and without leverage?