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The firm has $ 5 in cash. It borrows $ 9 5 at 1 0 % interest. The firm invests $ 1 0 0 (

The firm has $

5

in cash.

It borrows $

95

10 %

interest.

The firm invests $

100 (

the cash and borrowed funds

)

in a project that has a

50 / 50

chance of paying either $

80

or $

120 .

Under limited liability, what is the expected payoff to the debt?

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