consider the case of ajax manufacturing which just completed an
consider the case of ajax manufacturing which just completed an r&d project on widgets that required a $70 million bond obligation. the r&d effort resulted in an investment opportunity that will cost $75 million and generate cash flows of $85 million in the event of a recession (prob. = 20%) and $150 million if economic conditions are favorable (prob. = 80%). what is the npv of the project assuming no taxes, no direct bankruptcy costs, risk neutrality, and a risk-free interest rate of zero? can the firm fund the project if the original debt is a senior obligation that doesn’t allow the firm to issue additional debt?
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