Question
Hand-to-Mouth(H2M) currently has $200 million worth of assets and $250 million debt outstanding due in one year. H2M has a patent that can be made
Hand-to-Mouth(H2M) currently has $200 million worth of assets and $250 million debt outstanding due in one year. H2M has a patent that can be made into a new product. The product requires $50 million upfront investment and can generate $X million profitin one year. However, H2M cannot borrow any new debt and must finance the new product with equity. What is the minimalprofit X that would allow H2M to finance the new product by issuing new equity?(Hint: to be able to finance the new product with equity, H2Ms current asset value + FCF from the new product must be no smaller than the upfront investment + current debt outstanding)
A. 80
B. 100
C. 120
D. None of the above
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