Consider a project with free cash flows in one year of ?$131,704 or ?$169,027, with each outcome being equally likely. The initial investment required for the project is ?$108,058 and the? project's cost of capital is 18 % The? risk-free interest rate is 6%.
a. What is the NPV of this? project?
b. Suppose that to raise the funds for the initial? investment, the project is sold to investors as an? all-equity firm. The equity holders will receive the cash flows of the project in one year. How much money can be raised in this waylong dash—that ?is, what is the initial market value of the unlevered? equity?
c. Suppose the initial ?$108,058 is instead raised by borrowing at the? risk-free interest rate. What are the cash flows of the levered? equity, what is its initial value and what is the initial equity according to? MM?