Homework Answers
| Value of Firm | Value of Debt | Value of Equity | Probability | Value of Debt | Value of Equity | |
| Column | 1 | 2 | 3 | 1*3 | 2*3 | |
| Scenario 1 | 0 | 0 | 0 | 0.3 | 0.00 | 0.00 |
| Scenario 2 | 5 | 5 | 0 | 0.4 | 2.00 | 0.00 |
| Scenario 3 | 10 | 8 | 2 | 0.3 | 2.40 | 0.60 |
| Total | 4.40 | 0.60 |
Value of Debt - 4.40
Value of Equity - 0.60
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Question 2: (2.5 credits) Consider a firm with no asset in place and one current project...
A company has one year, zero-coupon debt outstanding with face value $83 million. The company's current...
A company has one year, zero-coupon debt outstanding with face value $83 million. The company's current market value of equity is $100 million. The firm will experience a free cash flow at year 1 and no further free cash flows. The free cash flow will be $225 million with probability 70% and $130 million with probability 30%. What is the equity cost of capital?
Question 6 5 pts A company has one-year, zero-coupon debt outstanding with face value $83 million....
Question 6 5 pts A company has one-year, zero-coupon debt outstanding with face value $83 million. The company's current market value of equity is $100 million. The firm will experience a free cash flow at year 1 and no further free cash flows. The free cash flow will be $222 million with probability 70% and $140 million with probability 30%. What is the equity cost of capital? Report a percentage with one digit after the decimal, e.g., 12.1 for 12.1%
At time t=0 a firm has a project which costs $160 today and will yield $200...
At time t=0 a firm has a project which costs $160 today and will yield $200 at time t=2 with probability 1/2 and $100 at time t=2 with probability 1/2. At time t=1 the firm learns what the payoff will be from the original project (i.e., whether the payoff will be $200 or $100) and, assuming they invested at t=0, the firm can choose to fund a follow-up project at time t=1 where the follow-up project requires spending an additional...
A firm's cash flows one year from now will be either $2 million if there is...
A firm's cash flows one year from now will be either $2 million if there is a boom or $.96 million if there is a recession. A boom and a recession are equally likely. A new project is available to the firm: It requires an investment today of $.4 million and will generate a cash flow one year from now of $.68 million for sure. The interest rate is 10% Suppose the firm has no debt. Will the project be...
Consider a project with free cash flow in one year of $130,000 in a weak market...
Consider a project with free cash flow in one year of $130,000 in a weak market or $180,000 in a strong market, with each outcome being equally likely. The initial investment required for the project is $100,000, and the project's unlevered cost of capital is 20%. The risk-free interest rate is 10%. (Assume no taxes or distress costs.) a. What is the NPV of this project? b. Suppose that to raise the funds for the initial investment, the project is...
Consider a project with free cash flow in one year of $130,000 in a weak market...
Consider a project with free cash flow in one year of $130,000 in a weak market or $180,000 in a strong market, with each outcome being equally likely. The initial investment required for the project is $100,000, and the project's unlevered cost of capital is 20%. The risk-free interest rate is 10%. (Assume no taxes or distress costs. a. What is the NPV of this project? b. Suppose that to raise the funds for the initial investment, the project is...
Consider a project with a free cash flows in one year of 149,546 or 179,003, with...
Consider a project with a free cash flows in one year of 149,546 or 179,003, with each of outcome being equally likely, the initial investment required for the project is 93,227 and the project's cost of capital is 17%, the risk-free interest rate is 7%. e funds f A) What is the NVP of this project B) Suppose that to raise the funds for the initial investment the project is sold to investors as an all-equity firm. The equity holders...
Consider a project with free cash flow in one year of $131,129 or $198,043, with each...
Consider a project with free cash flow in one year of $131,129 or $198,043, with each outcome being equally likely. The initial investment required for the project is $80,000, and the project's unlevered cost of capital is 16%. The risk-free interest rate is 6%. (Assume no taxes or distress costs.) a. What is the NPV of this project? b. Suppose that to raise the funds for the initial investment, the project is sold to investors as an all-equity firm. The...
Consider a project with free cash flows in one year of $143, 429 or $190,456with each outcome be...
Consider a project with free cash flows in one year of $143,
429 or $190,456with each outcome being equally likely. The initial
investment required for the project is $106,859 and the project's
cost of capital is 23 %. The risk-free interest rate is 6 %
a. What is the NPV of this
project?
b. Suppose that to raise the funds for the initial investment,
the project is sold to investors as an all-equity firm. The equity
holders will receive the...
Consider a project with free cash flows in one year of $133,605 in a weak market or $196,786 in a...
Consider a project with free cash flows in one year of $133,605 in a weak market or $196,786 in a strong market, with each outcome being equally likely. The initial investment required for the project is $65,000, and the project's unlevered cost of capital is 24%. The risk-free interest rate is 9%. (Assume no taxes or distress costs.) a. What is the NPV of this project? The NPV is $ _____? b. Suppose that to raise the funds for the...
Question 6 5 pts A company has one-year, zero-coupon debt outstanding with face value $83 million. The company's current market value of equity is $100 million. The firm will experience a free cash flow at year 1 and no further free cash flows. The free cash flow will be $222 million with probability 70% and $140 million with probability 30%. What is the equity cost of capital? Report a percentage with one digit after the decimal, e.g., 12.1 for 12.1%
A firm's cash flows one year from now will be either $2 million if there is a boom or $.96 million if there is a recession. A boom and a recession are equally likely. A new project is available to the firm: It requires an investment today of $.4 million and will generate a cash flow one year from now of $.68 million for sure. The interest rate is 10% Suppose the firm has no debt. Will the project be...
Consider a project with free cash flow in one year of $130,000 in a weak market or $180,000 in a strong market, with each outcome being equally likely. The initial investment required for the project is $100,000, and the project's unlevered cost of capital is 20%. The risk-free interest rate is 10%. (Assume no taxes or distress costs.) a. What is the NPV of this project? b. Suppose that to raise the funds for the initial investment, the project is...
Consider a project with free cash flow in one year of $130,000 in a weak market or $180,000 in a strong market, with each outcome being equally likely. The initial investment required for the project is $100,000, and the project's unlevered cost of capital is 20%. The risk-free interest rate is 10%. (Assume no taxes or distress costs. a. What is the NPV of this project? b. Suppose that to raise the funds for the initial investment, the project is...
Consider a project with free cash flow in one year of $131,129 or $198,043, with each outcome being equally likely. The initial investment required for the project is $80,000, and the project's unlevered cost of capital is 16%. The risk-free interest rate is 6%. (Assume no taxes or distress costs.) a. What is the NPV of this project? b. Suppose that to raise the funds for the initial investment, the project is sold to investors as an all-equity firm. The...
Consider a project with free cash flows in one year of $143,
429 or $190,456with each outcome being equally likely. The initial
investment required for the project is $106,859 and the project's
cost of capital is 23 %. The risk-free interest rate is 6 %
a. What is the NPV of this
project?
b. Suppose that to raise the funds for the initial investment,
the project is sold to investors as an all-equity firm. The equity
holders will receive the...
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