MM Inc, an all-equity company, is considering a new project where the success of the project is

uncertain. There is a 50% chance that the project will be a success and MM will have an EBIT

of $50 million per year in perpetuity; however, there is also a 50% chance that the project will

not be a success and MM will have an EBIT of $22 million per year in perpetuity. The expected

market return is 9% while the risk free rate is 3%. As well, MM's equity beta is 1.5 with

corporate taxes of 30%.

1. What is mm's unlevered cost of capital?
2. Ignore answer in 1. If MM's inlevered cost of capital is 10%, in a world with no taxes what is the value of the unlevered company?
3. Ignore answer in 2. If the value of the unlevered company is $200m, in a world with no taxes, what is the value of the unlevered company?