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28 Sep 2019
Consider a project with free cash flows in one year of $90,000 in aweak economy or $117,000 in a strong economy, with each outcomebeing equally likely. The initial investment required for theproject is $80,000 and the projectâs cost of capital is 15%. Therisk-free interest rate is 5%.
Suppose that to raise the funds for the initial investment the firmborrows $80,000 at the risk-free rate, then the value of the firmâslevered equity from the project is closest to:
(1) $0
(2) $10,000
(3) $6,000
(4) $8,600
Consider a project with free cash flows in one year of $90,000 in aweak economy or $117,000 in a strong economy, with each outcomebeing equally likely. The initial investment required for theproject is $80,000 and the projectâs cost of capital is 15%. Therisk-free interest rate is 5%.
Suppose that to raise the funds for the initial investment the firmborrows $80,000 at the risk-free rate, then the value of the firmâslevered equity from the project is closest to:
(1) $0
(2) $10,000
(3) $6,000
(4) $8,600
Suppose that to raise the funds for the initial investment the firmborrows $80,000 at the risk-free rate, then the value of the firmâslevered equity from the project is closest to:
(1) $0
(2) $10,000
(3) $6,000
(4) $8,600
Bunny GreenfelderLv2
28 Sep 2019
