Q2) Consider a bright entrepreneur living in a Perfect Capital Market (PCM) under certainty with only two time periods where r=10% or 0.1.
S/he does not have any initial material wealth but has a brilliant project which consists of generating $55,000 in t=2 by investing $30,000 during t=1
to make a better mousetrap. Our entrepreneur wants to finance the project by borrowing in the capital market. (V= value of the firm for this entrepreneur;
X=net earnings, I=investment expenditures, d=dividend per share, N=number of shares)
a) Is this a "good" project? Explain.
b) Can s/he finance this project? How? c) What is the value of this project for our entrepreneur? Hint: you can use eq 4.7 on p55