Question
UPC, Inc., is considering an investment project that generates a cash flow of $3,000 next year if the economy is favorable but generates only $1,500
UPC, Inc., is considering an investment project that generates a cash flow of $3,000 next year if the economy is favorable but generates only $1,500 if the economy is unfavorable. The probability of favorable economy is 70% and of unfavorable economy is 30%. The project will last only one year and be closed after that. The cost of investment is $2,200 and UPC plans to finance the project with $500 of equity and $1,700 of debt. Assuming the discount rates of both equity and debt are 0%. What is the expected cash flow to UPC's creditors if the company invests in the project?
$0 | ||
$1,640 | ||
$780 | ||
$1,020 | ||
$1,500 |
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