The case and the diagram (stated in the question) has been provided below the question. Please help it is urgent thank you very much!
3. For the example of case 2 in page 17 of Lecture note V, the subjective probability for the Good' must be higher than the corresponding risk-neutral probability. Assume the subjective probability for the "Good" state to be 60% and that for the 'Bad' state to be the complement probability, 40%. a. Calculate the expected return to asset, the expected return to debt and the expected return to equity before the change of capital structure. b. Calcuate the expected return to asset, the expected returm to debt and the expected return to equity after the change of capital structure. c. Suppose the company is with unlimited liability. Do 3.a and 3.b again d. Express the expected return to debt and the expected return to equity as a finction of leverage (D/E). Draw the two functions in the leverage-expected return diagram (like the diagram on page 13 in the lecture note). e. Suppose the company is with unlimited liability. Do 3.d again. 45 shares at a price of 1 each. The share price jumps from $ 0.95 per share to S1 The shareholders make a gain! 3. For the example of case 2 in page 17 of Lecture note V, the subjective probability for the Good' must be higher than the corresponding risk-neutral probability. Assume the subjective probability for the "Good" state to be 60% and that for the 'Bad' state to be the complement probability, 40%. a. Calculate the expected return to asset, the expected return to debt and the expected return to equity before the change of capital structure. b. Calcuate the expected return to asset, the expected returm to debt and the expected return to equity after the change of capital structure. c. Suppose the company is with unlimited liability. Do 3.a and 3.b again d. Express the expected return to debt and the expected return to equity as a finction of leverage (D/E). Draw the two functions in the leverage-expected return diagram (like the diagram on page 13 in the lecture note). e. Suppose the company is with unlimited liability. Do 3.d again. 45 shares at a price of 1 each. The share price jumps from $ 0.95 per share to S1 The shareholders make a gain