Consider the case of Ajax Manufacturing which

just completed an R&D project on widgets that

required a $70 million bond obligation. The

R&D effort resulted in an investment

opportunity that will cost $75 million and

generate cash flows of $85 million in the event

of a recession ( prob. 20%) and $150 million

if economic conditions are favorable ( prob.

80%). What is the NPV of the project assuming

no taxes, no direct bankruptcy costs, risk

neutrality, and a risk-free interest rate of zero?

Can the firm fund the project if the original debt

is a senior obligation that doesnt allow the firm

to issue additional debt?