Vista Oil & Gas Inc., owns assets that are 80% likely to have a market value of $ 100 million within a year and 20% that they are worth only $ 70 million. The current risk-free interest rate is 5% and the assets of this company have a cost of capital of 10%. There are two supposed scenarios:

a) Without debt, what is the current market value of your equity?

b) You have a debt with a nominal value of 70 million dollars maturing within a year, what is the value of your equity? Argue, based on the MM (Modigliani & Miller) Theory

c) What is the expected return without leverage?

d) What is the lowest possible return on equity with or without leverage? Argue based on the MM Theory