ABC Corp. is considering an investment project over the next period.  It has an equal chance of success and failure.  If it succeeds, the firm's assets will have a market value of $40 million, and if it fails, the market value will drop to $10 million.  
The current market value of the firm's asset is $25 million.  Also, the firm currently has bonds outstanding with $15 million of promised payment to bondholders at their maturity, which is the end of the period.  What is the firm's equity value? Assume that the risk-free rate over the next period is 10%.

Answer rating: 100% (QA)

To calculate the firms equity value we first need to determine the probabilityweighted market value ... View the full answer