QUESTION 13 Using the Modigliani-Miller (MM) theory in a perfect market, you want to evaluato a project and how to finance it. The project has free cash flows in one year of $00 in a weak economy or $120 in a strong economy There is 75% chance that the economy is strong The initial investment required for the project is $80, and the project's cost of capital is 10% The risk-free interest rate is 5% Suppose that to raise the funds for the initial investment, the project is sold to investors as an all-equty firm For the not present value (NPV) of the project and the market value of the unlevered equity, which of the following statements is correct? OA The NPV is $29 55 and the market value of the unlevered equity is $22.27 OB. The NPV is $29.55 and the market value of the unlovered equity is $102 27 OC. The NPV is $22.27 and the market value of the unlevered equity is $102 27 OD. The NPV is $22.27 and the market value of the unlevered equity is $22.27
QUESTION 13 Using the Modigliani-Miller (MM) theory in a perfect market, you want to evaluato a project and how to finance it. The project has free cash flows in one year of $00 in a weak economy or $120 in a strong economy There is 75% chance that the economy is strong The initial investment required for the project is $80, and the project's cost of capital is 10% The risk-free interest rate is 5% Suppose that to raise the funds for the initial investment, the project is sold to investors as an all-equty firm For the not present value (NPV) of the project and the market value of the unlevered equity, which of the following statements is correct? OA The NPV is $29 55 and the market value of the unlevered equity is $22.27 OB. The NPV is $29.55 and the market value of the unlovered equity is $102 27 OC. The NPV is $22.27 and the market value of the unlevered equity is $102 27 OD. The NPV is $22.27 and the market value of the unlevered equity is $22.27
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Transcribed Image Text:QUESTION 13
Using the Modigliani-Miller (MM) theory in a perfect market, you want to evaluato a project and how to finance it. The project has free cash flows in one year of $90 in a weak
economy or $120 in a strong economy There is 75% chance that the economy is strong. The initial investment required for the project is $80, and the project's cost of capital in
10% The risk-free interest rate is 5% Suppose that to raise the funds for the initial investment, the project is sold to investors as an all-equity firm For the not present value
(NPV) of the project and the market value of the unlevered equity, which of the following statements is correct?
OA. The NPV is $29 55 and the market value of the unlevered equity is $22.27
OB. The NPV is $20 56 and the market value of the unlevured equity is $102 27
OC. The NPV is $22.27 and the market value of the unlevered equity is $102.27
OD. Tho NPV is $22.27 and the market value of the unlovered equity is $22.27
4
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