Just answer C please Consider a project with free cash flows in one year...

70.2K

Verified Solution

Question

Finance

imageimageJust answer C please

Consider a project with free cash flows in one year of $146,018 in a weak market or $192,999 in a strong market, with each outcome being equally likely. The initial investment required for the project is $80,000, and the project's unlevered cost of capital is 20%. The risk-free interest rate is 12%. (Assume no taxes or distress costs.) 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 waythat is, what is the initial market value of the unlevered equity? c. Suppose the initial $80,000 is instead raised by borrowing at the risk-free interest rate. What are the cash flows of the levered equity in a weak market and a strong market at the end of year 1, and what is its initial market value of the levered equity according to MM? Assume that the risk-free rate remains at its current level and ignore any arbitrage opportunity a. What is the NPV of this project? The NPV is $ 61257 . (Round to the nearest dollar.) 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 waythat is, what is the initial market value of the unlevered equity? The initial market value of the unlevered equity is $ 141257. (Round to the nearest dollar.) c. Suppose the initial $80,000 is instead raised by borrowing at the risk-free interest rate. What are the cash flows of the levered equity in a weak market and a strong market at the end of year 1, and what is its initial market value of the levered equity according to MM? The cash flows of the levered equity in a weak market and a strong market at the end of year 1, and the initial market value of the levered equity according to MM is: (Round to the nearest dollar.) c. Suppose the initial $80,000 is instead raised by borrowing at the risk-free interest rate. What are the cash flows of the levered equity in a weak market and a strong market at the end of year 1, and what is its initial market value of the levered equity according to MM? The cash flows of the levered equity in a weak market and a strong market at the end of year 1, and the initial market value of the levered equity according to MM is: (Round to the nearest dollar.) Date 1 Cash Flow Weak Economy Debt Levered Equity Date 0 Initial Value $80,000 $ 61257) Cash Flow Strong Economy $ 104000 S

Answer & Explanation Solved by verified expert
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Become a Member

Other questions asked by students