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Suppose your firm has a cost of debt of 7% and a debt to equity ratio of 1:1. Your firms Beta is 1.8, the current

Suppose your firm has a cost of debt of 7% and a debt to equity ratio of 1:1. Your firms Beta is 1.8, the current 5-year Treasury Yield is 3%, and you estimate that the equity risk premium is 6%. You are considering a five-year project that has the following cashflows and default probabilities:

Year

0

1

2

3

4

5

CF

-200

0

40

60

90

300

Pr(Default)

0

0

0.3

0.3

0.3

0.3

What is the NPV of the project assuming no default?

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