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Consider a project with free cash flows in one year of ​$138 comma 307138,307 or ​$191 comma 367191,367​, with each outcome being equally likely. The initial investment required for the project

Consider a project with free cash flows in one year of ​$138 comma 307138,307 or ​$191 comma 367191,367​, with each outcome being equally likely. The initial investment required for the project is ​$90 comma 85090,850​, and the​ project's cost of capital is 18 %18%. The​ risk-free interest rate is 8 %8%. 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 waylong dash—that ​is, what is the initial market value of the unlevered​ equity?   c. Suppose the initial ​$90 comma 85090,850 is instead rais

 

May 16 2021 View more View Less

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