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%.

4. Suppose that to raise the funds for the initial investment the rm borrows $80; 000 at the risk free rate. Determine the value of the rm's levered equity from the project.

5. Suppose that to raise the funds for the initial investment the rm borrows $80; 000 at the risk free rate. Determine the cost of capital for the rm's levered equity.