Jim Campbell is founder and CEO of OpenStart, an innovative software company. The company is all-equity financed, with 100 million shares outstanding. The shares are trading at a price of $1. Rosenzweig currently owns 20 million shares. There are two possible states in one year. Either the new version of their software is a hit, and the company will be worth $160million, or it will be a disappointment, in which case the value of the company will drop to $75 million. The current risk-free rate is 2%. Rosenzweig is considering taking the company private by repurchasing the rest of the outstanding equity by issuing debt due in one year. Assume the debt is zero-coupon and will pay its face value in one year What fraction of the levered equity in (b) would you need to combine with the risk-free debt in (b) to raise the amount in (a)

Select the best choice:

A. To raise a total of $80 million, after raising $73.53 million in risk-free debt you would need to raise an additional $6.47 million, which is equivalent to 24.44% of the levered equity.

B. To raise a total of $100 million, after raising $73.53 million in risk-free debt you would need to raise an additional $6.47 million, which is equivalent to 24.44% of the levered equity.

C. To raise a total of $100 million, after raising $73.53 million in risk-free debt you would need to raise an additional $6.47 million, which is equivalent to 19.71% of the levered equity.

D. To raise a total of $80 million, after raising $73.53 million in risk-free debt you would need to raise an additional $6.47 million, which is equivalent to 19.71% of the levered equity.