Consider a project with free cash flows in one year of $$130,000$ in a weak market or $$180,000$ in a strong market, with

each outcome being equally likely. The initial investment required for the project is $$100,000,$ and the project's unlevered

cost of capital is $20\%.$ The risk$-$free interest rate is $10\%.($Assume no taxes or distress costs.$)$

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?

c$.$ Suppose the initial $$100,000$ is instead raised by borrowing at the risk$-$free interest rate. What are the cash flows of

the levered equity in a weak market and a strong market at the end of year $1,$ and what is its initial market value of the

levered equity according to MM$?$

Assume that the risk$-$free rate remains at its c$.$urrent level and innore anv arhitrace nnnortunitv

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 $$129167.($Round to the nearest dollar.$)$

c$.$ Suppose the initial $$100,000$ is instead raised by borrowing at the risk$-$free interest rate. What are the cash flows of

the levered equity in a weak market and a strong market at the end of year $1,$ and what is its initial market value of the

levered equity according to MM$?$

The cash flow of the levered equity in a weak market at the end of year $1$ is $$20000.($Round to the nearest dollar.$)$

The cash flow of the levered equity in a weak market at the end of year $1$ is $$70000.($Round to the nearest dollar.$)$

The initial market value of the levered equity according to MM is $

$($Round to the nearest dollar.$)$