Firm ABCs only asset is an empty plot of land and only liability is debt of $15M due in 1 year. If left vacant, the land will be worth $10M in 1 year. However, if the firm develops the land at an upfront cost of $20M, it will be worth $35M in 1 year. The risk-free rate is 10%, all CFs are risk free, and assume perfect capital markets.

If the firm doesnt develop the land, what are the values of E and D?

What is the NPV of developing the land?

Suppose the firm raises $20M from equityholders to develop the land. What is the value of E and D today.

Given 3), would equityholders be willing to provide $20M to develop the land?