Question
One year estimates suggest that Mulligan Manufacturing (MM) has a 20% probability of being worth $100 million, a 50% probability of being worth $200 million,
One year estimates suggest that Mulligan Manufacturing (MM) has a 20% probability of being worth $100 million, a 50% probability of being worth $200 million, a 10% probability of being worth $330 million and a 20% probability of being worth $400 million. The firm has two discount bonds outstanding: a senior bond outstanding with a face value of $100 million and a promised rate of return of 5% and a junior bond outstanding with a face value of $40 million and a promised return of 20%. If the firms required rate of return its assets is 12%, then what is the firms levered cost of equity?
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