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 $4.5 million. Investors are willing to provide you with $4.5 million in initial capital in exchange for 25%

of the unlevered equity in the firm.

a. What is the total market value of the firm without leverage?

b. Suppose you borrow $0.6 million. According to MM, what fraction of the firm's equity will you need to sell to raise the additional

$3.9 million you need?

c. What is the value of your share of the firm's equity in cases

(a) and (b)?

Part 1

a. What is the total market value of the firm without leverage?

The market value without leverage is ______ million.(Round to one decimal place.)

Part 2

b. Suppose you borrow $0.6 million. According to MM, what fraction of the firm's equity will you need to sell to raise the additional $3.9 million you need? The fraction of the firm's equity you will need to sell is

_____%.

(Round to the nearest whole percentage.)

Part 3

c. What is the value of your share of the firm's equity in cases

Case (a) is ____ million.

Case (b) is ____ million.