Homework Answers
Current value of company = probability of company goes to 5 million * 5 million + probability of company goes to 7.5 million * 7.5 million
Current value of company = 60% * 5 million + 40% * 7.5 million = 6 million
Debt issued = 6 million * 70% = 4.2 million
Value of equity= value of company - value of debt
Value of equity = 6 million - 4.2 million = 1.8 million
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