You are an entrepreneur starting a biotechnology firm. If your research is successful, the technology can be sold for $ 29 million. If your research is unsuccessful, it will be worth nothing. To fund your research, you need to raise $ 4.1 million. Investors are willing to provide you with $ 4.1 million in initial capital in exchange for 25 % of the unlevered equity in the firm.
a. What is the total market value of the firm without leverage?
b. Suppose you borrow $ 0.7 million. According to MM, what fraction of the? firm's equity will you need to sell to raise the additional $ 3.4 million you need?
c. What is the value of your share of the firm's equity in cases a and b?