Company X is due to repay £100m of debt at the end of next year and its assets are currently worth £100m. The company has a project costing £100m now, which generates either £150m or £0 with equal probabilities in one year. Assume the company's cost of capital is 10%. Which of the following statements is the most accurate? O The company's shareholders will never consider investing in the project since its expected NPV is negative O The company's shareholders should invest in the project since its expected NPV is positive O Undertaking the project reduces bankruptcy risks O The shareholders of the company are likely to undertake the project because all the downside risk is borne by creditors

Company X is due to repay £100m of debt at the end of next year and its assets are currently worth £100m. The company has a project costing £100m now, which generates either £150m or £0 with equal probabilities in one year. Assume the company's cost of capital is 10%. Which of the following statements is the most accurate? O The company's shareholders will never consider investing in the project since its expected NPV is negative O The company's shareholders should invest in the project since its expected NPV is positive O Undertaking the project reduces bankruptcy risks O The shareholders of the company are likely to undertake the project because all the downside risk is borne by creditors

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter14: Real Options

Section: Chapter Questions

Problem 7MC

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Please answer the question as in attached file.

Company X is due to repay £100m of debt at the end of next year and its assets are currently worth £100m. The company has a project costing £100m now, which generates either £150m or £0 with equal probabilities in one year. Assume the company's cost
of capital is 10%. Which of the following statements is the most accurate?
O The company's shareholders will never consider investing in the project since its expected NPV is negative
O The company's shareholders should invest in the project since its expected NPV is positive
O Undertaking the project reduces bankruptcy risks
O The shareholders of the company are likely to undertake the project because all the downside risk is borne by creditors

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