Consider a project with free cash flows in one year of USD 90,000 in a weak economy or USD 117,000 in a strong economy, with each outcome being equally likely. The initial investment required for the project is USD 80,000 , and the project's cost of capital is 15 percent. The risk-free interest rate is 5 percent. Suppose that to raise the funds for the initial investment the firm borrows USD 40,000 at the risk free rate and issues new equity to cover the remainder. The value of the firm's levered equity from the project is USD 0 USD 50,000 USD 90,000 USD 94,000