Question
Nexus Company is considering an investment project that generates a cash flow of $1,800 next year if the economy is favorable but generates only $700
Nexus Company is considering an investment project that generates a cash flow of $1,800 next year if the economy is favorable but generates only $700 if the economy is unfavorable. The probability of favorable economy taking place is 50% and unfavorable economy is 50%. The project will last only one year and be closed after that. The cost of investment is $1,200 and Nexus plans to finance the project with $400 of equity and $800 of debt. Assuming the discount rates of both equity and debt are 0%. What is the expected cash flow to Nexus s creditors if the company invests in the project? $0 $950 $500 $750 $800
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