Question
Abbott Laboratories is considering an investment project that generates a cash flow of $20,000 next year if the economy is favorable but generates only $10,000
Abbott Laboratories is considering an investment project that generates a cash flow of $20,000 next year if the economy is favorable but generates only $10,000 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 $15,000 and Abbott Laboratories plans to finance the project with $3,000 of equity and $12,000 of debt. Assuming the discount rates of both equity and debt are 0%. What is the expected cash flow to Abbott Laboratories' creditors if the company invests in the project?
$12,000$11,100$10,000$8,000$0
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