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Consider an entrepreneur with the following investment opportunity. For an initial investment of $800 this year, a project will generate cash flows of either $1,400
Consider an entrepreneur with the following investment opportunity. For an initial investment of $800 this year, a project will generate cash flows of either $1,400 next year or $ 900 next year with equal probability.The risk free rate is 5% and the risk premium of the project is 10%. suppose the entrepreneur decides to borrow $500 initially, in addition to selling equity.
What is the expected return of the levered equity? a. 15% b. 5% c. 25% d. 10%
What is the firms WACC? a. 10% b. 5% c. 25% d. 15%
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