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The predicted cash flows for the All-Mine Corporation in one year are 4,500 in a good economy, 3,000 in an average economy and 1,000 in
The predicted cash flows for the All-Mine Corporation in one year are 4,500 in a good economy, 3,000 in an average economy and 1,000 in a poor economy. Each economic outcome is equally likely and the promised debt repayment is 3,000. The All-Mine Corporation is deciding whether to invest in a new project. The project would have to be financed by equity; its cost is 2,000 and will return 2,500 or 25% in one year. The discount rate for both bonds and equity is 15% and the tax rate is zero. What is the net change in the value of the firm's (i) debt and (ii) equity if the firm invests in the project? Selected answer will be automatically saved. For keyboard navigation, press up/down arrow keys to select an answer. a (i) 579.71 and (ii) 405.80 b (i) 579.71 and (ii) 434.78 C (i) 456.66 and (ii) 434.78 d (i) 456.66 and (ii) 405.80 e None of the above
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