Question
A firm is worth $75 or $210 with equal probability and is financed with debt that has a face value of $80. It is considering
A firm is worth $75 or $210 with equal probability and is financed with debt that has a face value of $80. It is considering a new project that is equally likely to be worth -$50 or +$55. The cost of capital is 12% for all securities. What will happen to the value of the firm if the new project is undertaken?
The value of the firm will increase by $2.23
The value of the firm will decrease by $2.23
The value of the firm will decrease by $3
The value of the firm will increase by $3
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Probability and Random Processes With Applications to Signal Processing and Communications
Authors: Scott Miller, Donald Childers
2nd edition
123869811, 978-0121726515, 121726517, 978-0130200716, 978-0123869814
