Phillip is planning on opening an electronics store. He will run it for only 1 year. The initial cost for opening a store is 500K and it will generate an EBIT of 800k at the end of year for sure. Risk-free rate is 5%, tax rate is 35%. Suppose Johns current wealth is 50k. He can borrow money from a bank. Bank knows that his electronic store will generate EBIT of 800k at the end of year for sure.

In this situation, would he want to open the electronic store?

What is the value of his equity of the electronic (at t=0) if he opens it?

If he opens the restaurant at t=0 and sells the entire ownership of the electronic store to Zach at t=0, with what price can Phillip sell the ownership? How much return did Phillip make relative to his investment at t=0?