Your firm has the following structure: you own all the shares of the Dixit paper cup company. Dixit has $2,000,000 of outstanding perpetual debt with a 10% coupon selling at par. Dixit is currently selling paper cups that produce earnings before the interest of $210,000 per year. You receive the following offer from your engineer friend. He would help you liquidate Dixits assets and with the proceeds, you could build solar-powered scooters. Your financing would remain the same. You believe that there is a 75% chance that solar-powered scooters would not be particularly successful. In this case, they would generate only $100/year. However, there is a 25% chance that solar-powered scooters would be very successful. In this case, they would generate $500,000 per year. Assume your equity discount rate is 15%. Assume the firm pays no taxes.

a) What is the total value of your firm if you continue to sell paper cups?

b) What is the value of the solar-powered scooters investment assuming a 15% discount rate?

c) What is the value of your equity under each of these projects?