Consider a project with free cashflows in one year of $90; 000 in a weak economy or $117000 in a strong economy, with each outcome being equally likely. The initial investment required for the project is $80000, and the project's cost of capital is 15%. The risk{free interest rate is 5%.

1. Determine if it is worth to undertake the above project.

2. 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. Determine the market value of the unlevered equity for this project.

3. Suppose that to raise the funds for the initial investment the rm borrows $80; 000 at the risk free rate. Determine the cash flow that equity holders will receive in one year in a weak economy.