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Onlyland Inc. has only one asset - a plot of vacant land. Onlyland Inc. also has only one liability - debt of $15 million due
Onlyland Inc. has only one asset - a plot of vacant land. Onlyland Inc. also has only one liability - debt of $15 million due in one year. If left vacant, the land will be worth $12 million in one year. Alternatively, Onlyland can develop the land at an upfront cost of $20 million. The developed land will be worth $37.5 million in one year. Suppose the riskfree interest rate is 2%, assume all cash flows are risk-free, and assume there are no taxes. a. If the firm chooses not to develop the land, the value of the firm's equity today is $ million. (Input number only as your answer. Round it to the nearest whole number.) The value of the firm's debt today is $ million. (Input number only as your answer. Round it to the nearest whole number.) b. Suppose the firm raises $20 million from equity holders to develop the land. If the firm develops the land, the value of the firm's equity is $ million. (Input number only as your answer. Round it to the nearest whole number.) The value of the firm's debt today is $ million. (Input number only as your answer. Round it to the nearest whole number.) c. If equity holders decide not to develop the land, the agency cost (value destroyed) is $ million. (Input number only as your answer. Round it to the nearest whole number.)
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