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You are an entrepreneur starting a biotechnology firm. If your research is successful, the technology can be sold for $ 3 4 million. If your
You are an entrepreneur starting a biotechnology firm. If your research is successful, the technology can be sold for $
million. If your research is unsuccessful, it will be worth nothing. To fund your research, you need to raise $
million. Investors are willing to provide you with $
million in initial capital in exchange for
of the unlevered equity in the firm.
a What is the total market value of the firm without leverage?
b
Suppose you borrow $
million. According to MM what fraction of the firm's equity will you need to sell to raise the additional $
million you need?
c What is the value of your share of the firm's equity in cases a
and b
Question content area bottom
Part
a What is the total market value of the firm without leverage?
The market value without leverage is $enter your response here
million.Round to one decimal place.
Part
b
Suppose you borrow $
million. According to MM what fraction of the firm's equity will you need to sell to raise the additional $
million you need?
The fraction of the firm's equity you will need to sell is enter your response here
Round to the nearest whole percentage.
Part
c What is the value of your share of the firm's equity in cases a
and b
The value of your share of the firm's equity in case a
is $enter your response here
million.Round to one decimal place.
Part
The value of your share of the firm's equity in case b
is $enter your response here
million.Round to one decimal place.
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