Question: 5) Suppose you borrow $77M when financing a gym which cost is at $250,000M. You expect to generate a cash flow of $21M at the

5) Suppose you borrow $77M when financing a gym which cost is at

$250,000M. You expect to generate a cash flow of $21M at the end of

the year if demand is weak, $77M if demand is as expected and

$672M if demand is strong. The current risk-free interest rate is

6% (risk of debt) and there's a 10% risk premium for the risk of the assets.

(HINT: If you need it, to compute the WACC of the firm, add the risk free

plus the risk premium)

a. What should the value of the equity be?

b. What is the expected return of equity?

c. What would be the return of equity if the demand is strong?

d. What would be the return of equity if the demand is weak?

I do not have more information the question is framed in that manner. I apologize for the inconvinience.

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