Consider a project with free cash flows in one year of 5139,916 or $174,359, with each outcome being equally likely. The initial investment required for the project is 596,266, and the project's cost of capital is 24%. The risk-free interest rate is 10% a. What is the NPV of this project? b. Suppose that to raise the funds for the initial Investment, the project is sold to investors as an all-equity firm. The equity holders will receive the cash flows of the project in one year. How much money can be raised in this way-that is what is the initial market value of the unlevered equity? Suppose the initial $96,266 is instead raised by borrowing at the risk-free interest rate. What are the cash flows of the lovered equity. what is its initial value and what is the initial equity according to MM? a. What is the NPV of this project? The NPV = $(Round to the nearest dolla.) b. Suppose that to raise the funds for the initial investment, the project is sold to investors as an all-equity firm. The equity holders will receive the cash flows of the project in one year. How much money can be raised in this way-that is what is the initial market value of the unlevered equity? The initial market value of the unlevered equity is $(Round to the nearest dollar) c. Suppose the initial $90.266 is instead raised by borrowing at the risk-free interest rate. What are the cash flows of the levered equity, what is ts initial value and what is the initial equity according to MM? The cash flow of the levered equity and its initial values according to MMare (Round to the nearest dollar) Date 0 Initial Value Cash Flow Strong Economy Cash Flow Weak Economy 596,266 Lavared Fruit Date 1 Debt Consider a project with free cash flows in one year of $139,916 or $174,359, with each outcome being equally kely. The initial investment required for the project is $96,266, and the project's cost of capital is 24%. The risk-free interest rate is 10% a. What is the NPV of this project? b. Suppose that to raise the funds for the initial investment, the project is sold to investors as an al-equity firm. The equity holders will receive the cash flows of the project in one year. How much money can be raised in this way that is what is the initial market value of the unlevered equily? c. Suppose the initial 596,286 is instead raised by borrowing at the risk-free interest rate. What are the cash flows of the levered equity, what is its initial value and what is the initial equity according to MM? The NPV a $(Round to the nearest dollar) b. Suppose that to raise the funds for the initial investment, the project is sold to investors as an all-equity firm. The equity holders will receive the cash flows of the project in one year. How much money can be raised in this way that is what is the initial market value of the unlevered equity The initial market value of the unlevered equity is $() (Round to the nearest dollar:) 6. Suppose the initial $96.266 in instead raised by borrowing at the risk free interest rate. What are the cash flown of the levered equity, what is its initial value and what is the initial equity according to MM? The cash flows of the levered equity and its initial values according to MM are: (Round to the nearest dollar) : Date 0 Date 1 Cash Flow Strong Economy Cash Flow Weak Economy Debt Initial Value $96,266 Levered Equity
