Bentley Enterprises, is considering a $27,500,000 investment which has an IRR of 11 percent. If this investment were financed totally with equity what is the return on equity? If this project were financed with 35 percent of debt with a cost of 4 percent what is the return on equity? What if the actual return on the investment turned out to be -11 percent, what it the return to equity in this case? What types of risk are the equity holders facing in the all equity situation? What types of risk are they facing in the 35/65/D/S financing case? How are these risks reflected in the above situations?

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