P14-11 (similar to) Question Help Consider an entrepreneur with the following investment opportunity. For an initial investment of $750 this year, a project wil generate cash flows of her $1,125 next year or $938 next year. The cash flow depend on whether the economy is strong or weak during the year, with both scenarios being equally likely. The market value of the firm's revered equity today is $851.82. Investors demand a risk premium over the current free interes t invest in this project. Given the market risk of the investment, the appropriate risk premium is 12%. The entrepreneur decides to rise part of the inal capital using ett. Suppose the funds the project by borrowing 23. indetin to selling equity. The debt is risk-free. a. According to MM Proposition, what is the value of the lovered equily? What are its cash flows if the economy is wrong? What are its cash flows the economy is ok? b. What is the return on equity for the unlovered and the lovered investment? What is expected return for the lovered and univered investment? c. What is the risk premium of equity for the unlevered and the levered investment? What is the sensitivity of the univered and levered equity return to systematick? How does the lovered sensitivity compare to the son of the unlevered equity return to systematic risk? How does its lovered risk premium compare to the unlovered risk premium? d. What is the debt-equity ratio of the investment in the lovered case? e. What is the firm's WACC in the lovered case? a. According to MM Proposition I, what is the value of the levered equity? What are its cash flows the economy is strong? What are its cash fows if the economy is weak? According to MM Proposition, the value of the levered equity is S . (Round to the nearest cont.) Homework: Chapter 16 Homework Score: 0 of 1 pt X P16-18 (similar to) Save 6 of 11 (11 complete) HW Score: 68.18%, 7.5 of 11 p Question Help Consider a firm whose only asset is a plot of vacant land, and whose only liability is debt of $152 million due in one you. If lett vacant, the land will be worth $10.2 m onin one year. Alteratively. The firm can develop the land aan upfront cost of $19.8 million. The developed and will be worth $356 million in one year. Suppose the risk-free interest rate is 10.5% assume cash flows are risk-free, and assume there we notes a. If the firm choose not to develop the land, what is the value of the firm's equity today? What is the value of the debtoday? b. What is the NPV of developing the land? c. Suppose the firm raises $19.8 million from the equity holders to develop the land. If the firm develops the land, what is the value of the firm's equity loday? What is the value of the firm's de today? d. Given your answer to part would equity holders be willing to provide the $19.8 million needed to develop the land? a. If the firm choose not to develop the land, what is the value of the firm's equity today? What is the value of the debtoday? the firm chooses not to develop the land, the value of the equity is million found to two decimal places) P14-11 (similar to) Question Help Consider an entrepreneur wirefouing investment opportunity for an investment of 790 year, generate how of other $1,17 year or year. The c ows depend on whether the economy is strong or during the year with both scenarios being equally. The more value of the form's revered out today 1901.62. wettore demanda premium aver contre Invest in this project Oven the more of the investment, the appropriate prenumis 12. The entrepreneur decides to part of t h e support the pretty bor n on tog u The debt is riktree a. According to MM Proposten what is the the lovered y? What are its cachows economy is wrong? What are shows the economy b. What there on equity for the univered and the lovered investment? What is expected return for the lovered and univered westment? 6. What is the promum of equity for the red and releverd investment What is the son of the univered and levered e lun to system ? How does the red snity.compreso e s of the unlevered olyroturn to systematic How does it feveredik periun compare to the unleveredik premium? d. What is the dobioquity ratio of the investment in the levered case? e. What is the firm's WACC in the red case? a. According to MM Proposition I, what is the value of the lovered equity? What is cash flows the economy is strong? What are c lows the economy W ? According to MM Proposition, the value of the overed equity is found to the nearest cent) P14-11 (similar to) Question Help Consider an entrepreneur with the following investment opportunity. For an initial investment of $750 this year, a project wil generate cash flows of her $1,125 next year or $938 next year. The cash flow depend on whether the economy is strong or weak during the year, with both scenarios being equally likely. The market value of the firm's revered equity today is $851.82. Investors demand a risk premium over the current free interes t invest in this project. Given the market risk of the investment, the appropriate risk premium is 12%. The entrepreneur decides to rise part of the inal capital using ett. Suppose the funds the project by borrowing 23. indetin to selling equity. The debt is risk-free. a. According to MM Proposition, what is the value of the lovered equily? What are its cash flows if the economy is wrong? What are its cash flows the economy is ok? b. What is the return on equity for the unlovered and the lovered investment? What is expected return for the lovered and univered investment? c. What is the risk premium of equity for the unlevered and the levered investment? What is the sensitivity of the univered and levered equity return to systematick? How does the lovered sensitivity compare to the son of the unlevered equity return to systematic risk? How does its lovered risk premium compare to the unlovered risk premium? d. What is the debt-equity ratio of the investment in the lovered case? e. What is the firm's WACC in the lovered case? a. According to MM Proposition I, what is the value of the levered equity? What are its cash flows the economy is strong? What are its cash fows if the economy is weak? According to MM Proposition, the value of the levered equity is S . (Round to the nearest cont.) Homework: Chapter 16 Homework Score: 0 of 1 pt X P16-18 (similar to) Save 6 of 11 (11 complete) HW Score: 68.18%, 7.5 of 11 p Question Help Consider a firm whose only asset is a plot of vacant land, and whose only liability is debt of $152 million due in one you. If lett vacant, the land will be worth $10.2 m onin one year. Alteratively. The firm can develop the land aan upfront cost of $19.8 million. The developed and will be worth $356 million in one year. Suppose the risk-free interest rate is 10.5% assume cash flows are risk-free, and assume there we notes a. If the firm choose not to develop the land, what is the value of the firm's equity today? What is the value of the debtoday? b. What is the NPV of developing the land? c. Suppose the firm raises $19.8 million from the equity holders to develop the land. If the firm develops the land, what is the value of the firm's equity loday? What is the value of the firm's de today? d. Given your answer to part would equity holders be willing to provide the $19.8 million needed to develop the land? a. If the firm choose not to develop the land, what is the value of the firm's equity today? What is the value of the debtoday? the firm chooses not to develop the land, the value of the equity is million found to two decimal places) P14-11 (similar to) Question Help Consider an entrepreneur wirefouing investment opportunity for an investment of 790 year, generate how of other $1,17 year or year. The c ows depend on whether the economy is strong or during the year with both scenarios being equally. The more value of the form's revered out today 1901.62. wettore demanda premium aver contre Invest in this project Oven the more of the investment, the appropriate prenumis 12. The entrepreneur decides to part of t h e support the pretty bor n on tog u The debt is riktree a. According to MM Proposten what is the the lovered y? What are its cachows economy is wrong? What are shows the economy b. What there on equity for the univered and the lovered investment? What is expected return for the lovered and univered westment? 6. What is the promum of equity for the red and releverd investment What is the son of the univered and levered e lun to system ? How does the red snity.compreso e s of the unlevered olyroturn to systematic How does it feveredik periun compare to the unleveredik premium? d. What is the dobioquity ratio of the investment in the levered case? e. What is the firm's WACC in the red case? a. According to MM Proposition I, what is the value of the lovered equity? What is cash flows the economy is strong? What are c lows the economy W ? According to MM Proposition, the value of the overed equity is found to the nearest cent)