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pleaseee solve this question For questions 3-5: A model firm in a...

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Accounting

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For questions 3-5: A model firm in a perfect M&M world decides to experiment with different capital structures. It invests $800 today, and its cashflows tomorrow will be $1400 in a strong economy (e.g., high S&P500), and $900 in a weak economy, both equally likely. The risk-free rate is 5%, and you know that the risk premium for equity in the unlevered firm is 10%. 3. If the firm decides to have 65% debt/value ratio: a. How much money will the entrepreneur receive today from debt holders in exchange for a (single) bond? b. What will be the PPS of the firm if it has 100 shares in this case? C. Is the debt risk-free? d. What is the face value of the bond the entrepreneur sold? e. What is the expected return of the bond? f. What is the YTM of the bond? 4. If we assume that the unlevered model firm has a beta with the stock market of 1. What is the ERP in this economy

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