Consider a firm whose only asset is a plot of vacantland, and whose only liability is debt of $14.9 million due in one year. If leftvacant, the land will be worth $9.8 million in one year.Alternatively, the firm can develop the land at an upfront cost of $19.9 million. The developed land will be worth $34.8 million in one year. Suppose therisk-free interest rate is 9.7%, assume all cash flows arerisk-free, and assume there are no taxes.

a. If the firm chooses not to develop theland, what is the value of thefirm's equitytoday? What is the value of the debttoday?

If the firm chooses not to develop theland, the value of the equity is $...................million. (Round to two decimalplaces.)

The value of the debt today is $.............million. (Round to two decimalplaces.)

b. What is the NPV of developing theland?

The NPV of developing the land is $............. million.(Round to two decimalplaces.)

c. Suppose the firm raises $19.9 million from the equity holders to develop the land. If the firm develops theland, what is the value of thefirm's equitytoday? What is the value of thefirm's debttoday?

If the firm raises $19.9 million from the equity holders to develop theland, the value of equity is $...............million.(Round to two decimalplaces.)

If the firm develops theland, the value of debt is $................ million. (Round to two decimalplaces.)

d. Given your answer to part (c), would equity holders be willing to provide the $19.9 million needed to develop theland? (Select the best choicebelow.)

A.No. Equity holders will not be willing to accept the deal because for them it is a positive NPV investment.

B.No. Equity holders will not be willing to accept the deal because for them it is a negative NPV investment.

C.Yes. Equity holders will be willing to accept the deal because for them it is a positive NPV investment.

D.Yes. Equity holders will be willing to accept the deal because for them it is a negative NPV investment.