Question
Firm XYZ Inc . is considering to choose one project from the following two: a low risk project or a high risk one. The company
Firm XYZ Inc . is considering to choose one project from the following two: a low risk project or a high risk one.
The company has $2,800 debt .
The probability of good and bad economy state is 60%, and 40%. (NOT 50%!!) .
Below is forcasted firm value under two economies:
Firm value | Firm value | ||
Economy | Prob. | Low Risk Project | High Risk Project |
Bad | 40% | $ 2,600 | $ 2,400 |
Good | 60% | $ 3,600 | $ 4,400 |
Based on predicted firm value under the bad and good economy, please calculate:
( note: firm's value equals to a summation of prob. * predicted value under each economy)
. Expected firm value if firm adopts the HIGH risk project.
( Format and round to whole number, NO decimals,no "," , for example: 12500)
. Expected equity value if firm adopts the HIGH risk project.
( Format and round to whole number, NO decimals,no "," , for example: 12500)
. Expected debt value if firm adopts the HIGH risk project.
( Format and round to whole number, NO decimals,no "," , for example: 12500)
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