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A company is considering an investment project that generates a cash flow of $1,650,000 next year if the economy is favorable but generates only $500,000
A company is considering an investment project that generates a cash flow of $1,650,000 next year if the economy is favorable but generates only $500,000 if the economy is unfavorable. The probability of favorable economy is 55% and of unfavorable economy is 45%. The project will last only one year and be closed after that. The cost of investment is $1,000,000 and the company plans to finance the project with $400,000 of equity and $600,000 of debt. Assuming the discount rates of both equity and debt are 0%. What is the expected cash flow to the company's shareholders if it invests in the project?
(a) $600,000
(b) $577,500
(c) $555,000
(d) $1,050,000
(e) $0
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