The firm is considering an investment project costing $1. What is the amount by which the project's value must exceed its cost in order for shareholders to be willing to pay for it? Repeat for project values of $10 and $25.
Answer to relevant QuestionsNowsuppose the firm finances the project by issuing debt that has lower priority than existing debt. How much must a $1, $10, or $25 project be worth if the shareholders are willing to fund it? A project costing $100 will produce perpetual net cash flows that have an annual volatility of 35% with no expected growth. If the project existed, net cash flows today would be $8. The project beta is 0.5, the effective ...Repeat Problems 17.17 and 17.18 assuming that the annual volatility of gold is 20%. Repeat Problem 17.6, only assume that after the stock is excavated, the land has an alternative use and can be sold for $30m. Suppose x1∼ N(1, 5) and x2 ∼ N(−2, 2). The covariance between x1 and x2 is 1.3. What is the distribution of x1+ x2? What is the distribution of x1− x2?
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