16.1 1. Consider a project with free cash ows in one year of $160,000 in a weak market or $120,000 in a strong market, with each outcome being equally likely. The initial investment required for the project is $115,000, and the project's unlevered cost of capital is 26%. The riskvtree interest rate is 10%. [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~equiry firm. The equity holders will receive the cash ows of the project in one year. How much money can be raised in this waylong dashthat is, what is the initial market value of the unlevered equity? c. Suppose the initial $115,000 is instead raised by borrowing at the riskfree interest rate. What are the cash ows 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 Mt? Assume that the riskfree rate remains at its current level and ignore any arbitrage opportlmity