Your friend has successfully utilized AI to build genome-based medicine (akin to the Deep Genomics), and she has recently gotten all the necessary approvals for these. She plans to incorporate, she does not have her own funds, and she requires $5 million in start-up funding (for the initial production, marketing, distribution, etc.). She expects annual profits of $1.5 million in perpetuity, starting in one year; the unlevered cost of equity for this project is 10%.

Assume perfect capital markets [in particular: no taxes] in the sense of the Modigliani-Miller theorems.

1. PROVE that this firm is worth investing into by computing the projects NPV.

2. Your friend asks for your advice on the optimal choice of financing for her project. What is your recommendation and why? [1-2 sentences.]

3. What is your advice in (2) notwithstanding, your friend chose full equity financing. She plans to issue 10 million shares; she will sell 9 million to her investors and keep 1 million to herself.

1. At which price should she sell the shares (assume that her goal is to maximize her profits)?
2. How much money will she raise?

4. Some of your friends potential investors are reluctant to invest in an all-equity firm. Their chief complaint is that a combination of debt and equity-financing typically yields higher expected returns to equity-holders.

Help your friend address these investors concerns. You answer must, in particular, (i) address whether equity investors will indeed earn higher returns under a different financing arrangement, and (ii) explain whether and how your friend can convince these investors to invest into her firm.

[2-4 sentences.]

5. Explain how and whether your answers to parts (2) and (4) were affected by the following assumptions:
   1. Investors and firms can trade the same set of securities at competitive market prices.
   2. There are no taxes.