Turret is a firm financed by 830,000 equity shares and debt due in one year with a face value of 230 million. The current total market value of the firm is 240 million. The firm has announced to the market that it will undertake a new project (Project X) which if successful will lead to a firm value in one years time of 315 million. If the project is unsuccessful the firms value will be 170 million. Alternatively, the firm could undertake Project Y instead of Project X. Project Y, if successful, would lead to a firm value in one years time of 300 million. If the project is unsuccessful the firms value would be 245 million. If Project Y is undertaken the current total market value of the firm will remain unchanged at 240 million. Assume that investors are risk-neutral, the market is semi-strong form efficient and that the risk-free rate of interest is 6%. For both Project X and Project Y, calculate: (ai) the risk-neutral probabilities of project success and failure; (5 marks) (aii) the expected payoff to Turrets equity holders in one years time, and the firms share price now. (6 marks) (a iii) the market value of Turrets debt now and the yield to the debtholders. (6 marks) (b) Explain how the firms equity and debt claims can be represented in an option pricing framework. Demonstrate this using your answers from part (a). (8 marks)