You need to raise $1M in cash to finance a one-year investment opportunity.

u in! You need to raise $1M in cash to nance a one~year investment opportunity. The investment opportunity pays $1.5M in cash next year if economic conditions are good [50% probability}. Otherwise, the investment opportunity pays $900K in cash if economic conditions are bad [Snell probability}. Assume a risk'free rate of 596 and no taxes. a] Suppose that you raise 51M in cash by issuing SEDIJK in equity and SlK in debt. Equity holders are the residual claimants on the nal cash ows from the investment after the debtholders are repaid their principal and interest. The expected return on debt equals the n'sk'free rate because the proceeds from the project can repay the debt plus interest, regardless of the state of the economy. What is the expected return on equity? What is the expected return on assets? {Use the weighted average cost of capital equation to answer the latter question.] b} Answer the questions in part [a] again, but instead assume that you raise $1M in cash by issuing $500K in equity and 550% in debt. The expected return on debt will still equalthe risk'free rate. c] Answer the questions in part [a] again, but instead assume that you raise $1M in cash by issuing SEWK in equity and 530% in debt. The expected return on debt will still equalthe risk'free rate. d} Answer the questions in part [a] again, but instead assume that you raise $1M in cash by issuing SSK in equity and $950K in debt. Because the debtholders will only be repaid ssaox in the bad state, they will ask for a promised return of 353535 in the good state. What is the expected return on debt? What is the expected return on equity? What is the expected return on assets? e] Using your answers in [a] to {d}, create a graph of the expected return on assets, expected return on debt, and expected return on equity versus the ratio of debt issuance to $1M {this ratio would be 2096 in partl'al]