Acort Industries owns assets that will have? a(n) 80% probability of having a market value of $40 million in one year. There is a 20% chance that the assets will be worth only $10 million. The current? risk-free rate is 2%?, and? Acort's assets have a cost of capital of 4%.
a. If Acort is? unlevered, what is the current market value of its? equity?___
b. Suppose instead that Acort has debt with a face value of $7 million due in one year. According to? MM, what is the value of? Acort's equity in this? case?___
c. What is the expected return of? Acort's equity without? leverage ___? What is the expected return of? Acort's equity with? leverage___?
d. What is the lowest possible realized return of? Acort's equity with and without? leverage?