Using the Modigliani-Miller (MM) theory in a perfect market, you want to evaluate a project and how to finance it. The project has free cash flows in one year of $90 in a weak economy or $120 in a strong economy. There is 75% chance that the economy is strong. The initial investment required for the project is $80, and the project's cost of capital is 10%. The risk-free interest rate is 5%. Suppose that to raise the funds for the initial investment, the project is sold to investors as an all-equity firm. The highest possible realized return of the unlevered equity is closest to: OA-12.0096 B.-20.15% C. 17.34% OD. 10.00% ACCM Inc. is considering adding leverage to its capital structure. The firm's managers believe they can issue more debt to exploit the tax benefit of leverage. However, they also recognize that higher debt increases the risk of financial distress. Based on simulation of the firm's future cash flows, the managers have made the following estimates (in millions of dollars) for different levels of debt (96) in the firm capital structure. Debt level 1096 2096 3096 4096 5096 PV(Interest tax shield) 1 2.5 3.75 4.5 5.25 PV(Financial distress cost) 0.5 1.25 2.25 3.1 6.25 The optimal capital structure (debt level) of the firm is closest to: A. 5096 OB. 4096 OC. 30% OD. 2096 Which of the following costs would you consider when forecasting incremental earnings of a project? A. Sunk cost B. Fixed overhead cost Opportunity cost Interest expense