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Q3 A firm has outstanding debt with face value of $70 and is expected to generate a single risky cash flow in one year. The

Q3 A firm has outstanding debt with face value of $70 and is expected to generate a single risky cash flow in one year. The CF will be either $200 (with probability 0.6) or $100 (with probability 0.4). The cost of capital is 0. If the firm decides to borrow additional $50 and pay the amount as a dividend to shareholders, what will be the value of equity in the firm? Assume the new debt will be senior to old debt.

A. $48

B. $40

C. $32

D. $24

E. $30

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