Consider a firm whose only asset is a plot of vacant land, and whose only liability is debt of $14.6 million due in one year. If left vacant, the land will be worth $10.4 million in one year. Alternatively, the firm can develop the land at an upfront cost of $20.1 million. The developed land will be worth $34.7 million in one year. Suppose the risk free interest rate is 10.3%, assume all cash flows are risk-free, and assume there are no taxes. a. If the fim chooses not to develop the land, what is the value of the firm's equity today? What is the value of the debt today? b. What is the NPV of developing the land? C. Suppose the firm raises $20.1 million from the equity holders to develop the land. If the firm develops the land, what is the value of the firm's equity today? What is the value of the firm's debt today? d. Given your answer to part (c), would equity holders be willing to provide the $20.1 million needed to develop the land? a. If the fim chooses not to develop the land, what is the value of the firm's equity today? What is the value of the debt today? If the firm chooses not to develop the land, the value of the equity is milion. (Round to two decimal places.) The value af the debt today is million. (Round to two decimal places) b. What is the NPV of developing the land? The NPV of developing the land is million. (Round to two decimal places.) c. Suppose the firm raises $20.1 million from the equity holders to develop the land. If the firm develops the land, what is the value of the firm's equity today? What is the value of the firm's debt today? If the fimm raises $20.1 mllion from the equity holders to develop the land, the value of equity is Smilion. (Round to two decimal places.) If the firm develops the land, the value of debt is milion. (Round to two decimal places.) d. Given your answer to part c would equity holders be willing to provide he $20.1 mil on needed to develop the land? Select the best choice below. Yes. Equity holders will be willing to accept the deal because for them it is a negative NPV investment. No. Equity holders will not be willing to accept the deal because for them it is a negative NPV investment. A. O B. O A. Yes. Equity holders will be willing to accept the deal because for them it is a negative NPV investment. O B. No. Equity holders will not be willing to accept the deal because for them it is a negative NPV investment. C. No. Equity holders will not be willing to accept the deal because for them it is a positive NPV investment. O D. Yes. Equity holders will be willing to accept the deal because for them it is a positive NPV investment. Consider a firm whose only asset is a plot of vacant land, and whose only liability is debt of $14.6 million due in one year. If left vacant, the land will be worth $10.4 million in one year. Alternatively, the firm can develop the land at an upfront cost of $20.1 million. The developed land will be worth $34.7 million in one year. Suppose the risk free interest rate is 10.3%, assume all cash flows are risk-free, and assume there are no taxes. a. If the fim chooses not to develop the land, what is the value of the firm's equity today? What is the value of the debt today? b. What is the NPV of developing the land? C. Suppose the firm raises $20.1 million from the equity holders to develop the land. If the firm develops the land, what is the value of the firm's equity today? What is the value of the firm's debt today? d. Given your answer to part (c), would equity holders be willing to provide the $20.1 million needed to develop the land? a. If the fim chooses not to develop the land, what is the value of the firm's equity today? What is the value of the debt today? If the firm chooses not to develop the land, the value of the equity is milion. (Round to two decimal places.) The value af the debt today is million. (Round to two decimal places) b. What is the NPV of developing the land? The NPV of developing the land is million. (Round to two decimal places.) c. Suppose the firm raises $20.1 million from the equity holders to develop the land. If the firm develops the land, what is the value of the firm's equity today? What is the value of the firm's debt today? If the fimm raises $20.1 mllion from the equity holders to develop the land, the value of equity is Smilion. (Round to two decimal places.) If the firm develops the land, the value of debt is milion. (Round to two decimal places.) d. Given your answer to part c would equity holders be willing to provide he $20.1 mil on needed to develop the land? Select the best choice below. Yes. Equity holders will be willing to accept the deal because for them it is a negative NPV investment. No. Equity holders will not be willing to accept the deal because for them it is a negative NPV investment. A. O B. O A. Yes. Equity holders will be willing to accept the deal because for them it is a negative NPV investment. O B. No. Equity holders will not be willing to accept the deal because for them it is a negative NPV investment. C. No. Equity holders will not be willing to accept the deal because for them it is a positive NPV investment. O D. Yes. Equity holders will be willing to accept the deal because for them it is a positive NPV investment
