You are an entrepreneur starting a biotechnology firm. If your research issuccessful, the technology can be sold for $30 million. If your research isunsuccessful, it will be worth nothing. To fund yourresearch, you need to raise $2.4 million. Investors are willing to provide you with $2.4 million in initial capital in exchange for 45% of the unlevered equity in the firm.

a. What is the total market value of the firm withoutleverage?

b. Suppose you borrow $0.8 million. According toMM, what fraction of thefirm's equity will you need to sell to raise the additional $1.6 million youneed?

c. What is the value of your share of thefirm's equity in cases (a) and (b)?

a. What is the total market value of the firm withoutleverage?

The market value is $

nothing

million.(Round to one decimalplace.)

b. Suppose you borrow $0.8 million. According toMM, what fraction of thefirm's equity will you need to sell to raise the additional $1.6 million youneed?

You will need to sell

nothing

%. (Round to the nearestinteger.)

c. What is the value of your share of thefirm's equity in cases (a) and (b)?

Case (a) is $

nothing

million.(Round to one decimalplace.)

Case (b) is $

nothing

million.(Round to one decimalplace.)