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Assume two companies, each with only one asset that will mature in one year for a cash value of $ 5 0 0 . That
Assume two companies, each with only one asset that will mature in one year for a cash value
of $ That asset or any part of it can be exchanged for cash at present value, using
discount rate. That is the companies can cash in enough of the asset to provide for any required
project investment. Company is all equity financed and has debt with par value of $ to
be paid in exactly one year no interest, only par Both companies are presented with a new
project. The project will require a $ investment and will have one payoff in one year. The
payoff is $ with probability and zero otherwise. Assume risk adjusted discount rate is
a Will company A take the project?
b Will company B take the project? What is the project NPV to Bs shareholders?
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