Consider a firm with assets worth $18.18M. The firm has outstanding debt of $24M due in one year. The firm can expand at a cost of $12M million payable now. The estimated market value of the firm following the expansion will equal $36M in one year. Suppose that the risk free rate is 10%.

i) If the firm chooses not to expand, what is the value of the firm's equity today? What is the value of its debt today? (Assume that there are no other projects that the firm can undertake so the asset value will be $20M if no investment is made.)

ii) What is the net present value (NPV) of the considered capacity expansion?

Suppose the firm considers raising $12M from equity holders to finance the expansion.

iii) Calculate the value of the firm's equity and debt today if the expansion was decided upon. Would equity holders be willing to provide $12M necessary to finance the expansion in the first place? Explain.

Assume that equity holders have an option to increase the riskiness of the firm's operations so that its estimated value in one year equals either $28M or zero, with both scenarios occurring with equal probabilities.

iv) Would equity holders decide to increase the firm's riskiness? Discuss how the level of debt affects equity holders' propensity to increase the riskiness of the firm's operations.

v) How will the decision taken in the previous point affect the expected value of the firm as a whole in one year?

QUESTION 25 An underperforming economy is one where O A. Actual real GDP is below the full employment level of GDP. O B. Workers' job performance lags due to slow changes in technology. O C. Actual real GDP is higher than the full employment level of GDP. O D. The full employment level of GDP is almost equal to actual real GDP.Complete this question by entering your answers in the tabs below. Balance Sheet Balance Sheet 2018 2019 Prepare the balance sheet for the business as of December 31, 2019. Hint: Report only total equity on the balance sheet and remember that total equity equals the difference between assets and liabilities. NETTLE DISTRIBUTION Balance Sheet December 31, 2019 Assets Liabilities Total liabilities Equity Total equity Total assets 0 Total liabilities and equity 0 QUESTION 1 All risk that stockholders bear should be compensated with higher expectations for returns True False. Only firm risk compensates through higher expected returns )False, Only market risk compensates through higher expected returns False. Only interest rate risk compensates through higher expected returns QUESTION 2 For the majority of stocks, what percentage of their returns fall between 1 and 2 standard deviations away from their average return? About equal to 27% Greater than 279% Less than 2796 About 13.5%On which financial statement(s) can you find "income before income taxes"? O Balance sheet Income Statement and Statement of Stockholders' Equity Balance Sheet and Cash Flows Statement O Income Statement and Balance Sheet O Income Statement Question 3 15 On which financial statement(s) can you find "net income"? O Income Statement and Balance Sheet O Income Statement, Balance Sheet, Statement of Stockholders' Equity and Cash Flows Statement Income Statement, Balance Sheet and Statement of Comprehensive Income Income Statement, Statement of Comprehensive Income, Cash Flows Statement and Statement of Stockholders' Equity O Balance Sheet and Statement of Stockholders' Equity