Consider a project with free cash flows in one year of $90,000 in a weak economy or $117,000 in a strong economy, with each outcome being equally likely. The initial investment required for the project is $80,000 and the project’s cost of capital is 15%. The risk-free interest rate is 5%. firm levered plans to borrow $45,000 at the risk-free rate and use equity to finance the remainder of the initial investment.