Mini Case Capital Structure: Balancing the Benefits and Costs of Debt" Please respond to the following: Calculate the expected value of the high and low risk project to MarCher Industries stockholders if the firm remains unlevered. Predict which project the stockholders prefer. Justify your prediction. Calculate the expected value of the high and low risk project of MarChers stockholders and bondholders, assuming the firm does borrow money to partially finance the purchase of the project. Predict which project the bond holders prefer. Justify your prediction. Predict which project stockholders would prefer. Justify your prediction. Calculate the expected value of the high and low risk project to MarCher Industries stockholders if the firm remains unlevered. Predict which project the stockholders prefer. Justify your prediction. Calculate the expected value of the high and low risk project of MarChers stockholders and bondholders, assuming the firm does borrow money to partially finance the purchase of the project. Predict which project the bond holders prefer. Justify your prediction. Predict which project stockholders would prefer. Justify your prediction. Open this file: MarCherProblem _1_ _2_.pdf The value of equity for the high-risk project: 1,500,000-900,000 =? 400,000-900,000=-500,000 (.6*600,000)+(.6*-500,000) = 60,000 Value of debt for high-risk project: (.6*900,000) + (.4*900,000) =? Value of high risk project: 60,000 720,000 = -? Value of equity for the low-risk project: (.6*100,000) + (.6*-400,000) = -180,000 Value of debt for the low-risk project = (.4 * 900,000) + (.4*900,000) = 720,000 Value of low risk project = -180,000 720, 000 = -? Stockholders for high-risk project could receive $600,000 or lose $500,000 Stockholders in a low risk project could receive $ $100,000 or lose $400,000 A shareholder would prefer a high-risk project because it has a positive equity to begin with and the stockholder would receive the highest return for their investment. In a low-risk project, the debt to equity is larger. The company has more debt than equity. Bondholders prefer to invest in high risk projects, if the project were to bust the bondholder would

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