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You are an entrepreneur starting a biotechnology firm. If your research is​ successful, the technology can be sold for $...

You are an entrepreneur starting a biotechnology firm. If your research is​ successful, the technology can be sold for $ 21 million. If your research is​ unsuccessful, it will be worth nothing. To fund your​ research, you need to raise $ 5.3 million. Investors are willing to provide you with $ 5.3 million in initial capital in exchange for 45 % of the unlevered equity in the firm. a. What is the total market value of the firm without​ leverage? b. Suppose you borrow $ 0.5 million. According to​ MM, what fraction of the​ firm's equity will you need to sell to raise the additional $ 4.8 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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Investors Investment$5.30 million Share in Equity 45% Therefore, Market Value of Firm 5.30/0.45 $11.78 million Firm borrowed

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