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You are an entrepreneur starting a biotechnology firm. If your research is successful, the technology can be sold for $25 million. If your research is

You are an entrepreneur starting a biotechnology firm. If your research is successful, the technology can be sold for $25 million. If your research is unsuccessful, it will be worth nothing. To fund your research, you need to raise $4 million.

Suppose instead of funding 100% from equity investors, you have borrowed $2 million. According to MM, what fraction of the firms equity will you need to sell to raise the capital you need?

What is the value of your share of the firms equity in cases (a) and (b)? Remember to provide an explanation for your answer.

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