Question
Genworth Company is considering an investment project that generates a cash flow of $850,000 next year if the economy is favorable but generates only $320,000
Genworth Company is considering an investment project that generates a cash flow of $850,000 next year if the economy is favorable but generates only $320,000 if the economy is unfavorable. The probability of favorable economy is 60% and of unfavorable economy is 40%. The project will last only one year and be closed after that. The cost of investment is $600,000 and Genworth Company plans to finance the project with $220,000 of equity and $380,000 of debt. Assuming the discount rates of both equity and debt are 0%. What is the expected cash flow to Genworth Company's creditors if the company invests in the project?
$470,000 | ||
$380,000 | ||
$356,000 | ||
$320,000 | ||
$0 |
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