You are an entrepreneur starting a biotechnology firm. If your research is successful, the technology can be sold for $32 million. If your research is unsuccessful, it will be worth nothing. To fund your research, you need to raise $3.2 million. Investors

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You are an entrepreneur starting a biotechnology firm. If your research is successful, the technology can be sold for $32 million. If your research is unsuccessful, it will be worth nothing. To fund your research, you need to raise $3.2 million. Investors

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)?

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Answer 1

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answered by: Andrew San Andres

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Answer 2

You are an entrepreneur starting a biotechnology firm. If your research is successful, the technology can be sold for $32 million. If your research is unsuccessful, it will be worth nothing. To fund your research, you need to raise $3.2 million. Investors

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You are an entrepreneur starting a biotechnology firm. If your research is successful, the technology can be sold for $32 million. If your research is unsuccessful, it will be worth nothing. To fund your research, you need to raise $3.2 million. Investors

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