2. Genoma Inc. Genoma Inc. faces the need to raise external funds to undertake some new investment opportunities. By investing $100M Genoma will generate a gross return of $140M for sure and the market knows that. Unfortunately, Genoma has no internal funds and, because of the nature of the business, has to raise funds by issuing equity. The problem is that the market does not know whether the current value of Genoma assets is $100M or $20M, and regards both outcomes as equally likely. The managers of Genoma do know the true value, but they cannot reveal it, because this will jeopardize their success. Assume that investors are risk neutral and that the proper discount rate is zero. Suppose further that Genoma's managers are loyal agents of the existing shareholders. 1 The intrinsic value is the price at which the shares would trade if the market valued them properly