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Consider a bright entrepreneur living in a Perfect Capital Market (PCM) under certainty with only two time periods where r=10% or 0.1. S/he does not

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Consider a bright entrepreneur living in a Perfect Capital Market (PCM) under certainty with only two time periods where r=10% or 0.1. S/he does not have any initial material wealth but has a brilliant project which consists of generating 45,000 $ in t=2 by investing 20,000 $ during t=1 to make a better mousetrap. Our entrepreneur wants to finance the project by selling shares in the capital market . (V= value of the firm for this entrepreneur; X=net earnings, I investment expenditures, d=dividend per share, N=number of shares). Answer the following questions: a) Is this a "good" project? Explain. b) Can s/he finance this project? How? c) Suppose the entrepreneur issues 40000 shares. What will be the price of 1 share? d) How many shares will s/he sell and how many will s/he keep? e) What is the value of this project for our entrepreneur? Hint: V(1)=N(1)*s(1)

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