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Indigo Books owns assets that have a 75% probability of having a market value of...

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Indigo Books owns assets that have a 75% probability of having a market value of $550M and a 25% probability that the assets will be worth $200M in one year. The firm will not generate cash flows thereafter. The current risk-free rate is 3% and the discount rate on the assets is 6%. Suppose Indigo has debt due in one year of $150M. If MM holds implying a perfect market, what is the value of Indigo's equity? $287.3M $290.7M $316.9M $300.0M The concept of "Homemade Leverage" establishes that: It is more convenient for shareholders to have leverage at the personal portfolio level. In this way, firms are less likely to go bankrupt. Debt holders will be reluctant to lend money to firms whose shareholders are overleveraged. It is more convenient for shareholders that the firm uses leverage. In this way, shareholders' personal portfolio will be less risky. Shareholders can use leverage at the personal portfolio level to undo a firm's leverage decisions

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