Please explain all of this

Additionally, where 11% comes from

is there any other method to count S and n here?

Will rate you if you answer clearly

Startup, Inc. is a newly created company whose only asset is $900,000 in cash and whose only liability is 20,000 shares of common stock, with a current price of $45. The firm is considering an investment opportunity that will cost $1,000,000 today and will produce an expected cash flow of $1,500,000 one year from now. The firm can raise the additional $100,000 needed to finance the project by either issuing 1-year zero coupon bonds with a yield of 11%, or by issuing additional equity. The current yield on a 1-year T-Bill is 10%. Startup finds that projects of similar risk have an average beta of 1.875. The expect return on the market portfolio over the next year will be 18%. Taxes and default costs are negligible (20 points) (a) What the net present value of the project? (4 points) TA=r; +(I'm - r8A = 0.10 + (0.18 -0.10)(1.875) = 25%. NPV = -1,000,000+ 1,500,000 1.25 200,000 b) Suppose that the needed $100,000 is raised by issuing new equity. ( What will be the new share price? And how many new shares will have to be issued? (4 points) (iii) What will be the expected rate of return on the firm's stock? (2 points) Suppose that the project is financed by issuing n shares of stock. Let S be the issue price of the new shares. Since the value of the firm if the project is undertaken is $1,200,000, we have { ns = 100.000 (20,000+ n) S = 1,200,000 Solving gives S = 55 and n = 1,818. n=1,818 (from above). Since the firm is all equity financed, we have re=rA 25%. 13 (C) Suppose that the needed $100,000 is raised by issuing debt. 1) What will be the new share price in this case? (2 points) m) What will be the expected rate of return on the firm's stock? (4 points) If the $100,000 is raised by issuing debt, the share price will be S 1.200,000 - 100.000 20.000 To compute the firm's equity beta, notice that 0.11 = rp = 0.10 + (0.18-0.10) Bp = 0.125, SO 1.875 = BA = Bp) + BE = 0.125 BE = 2.034. 100,000 1,100,000 + BE 1,200,000 1.200,000 Hence, the expected rate of return on equity is re=ry + (rm -ry) Be=0.10+ (0.18 -0.10)2.034 = 26.27%