Question: A firm is worth $85 or $215 with equal probability and is financed with debt that has a face value of $100. It is considering

A firm is worth $85 or $215 with equal probability and is financed with debt that has a face value of $100. It is considering a new project that is equally likely to be worth -$50 or +$55. The cost of capital is 11% for all securities. Calculate the present values of the firms debt and equity if the project is undertaken.

Debt 61.94; Equity 75.45

Debt 65; Equity 100

Debt 100; Equity 65

Debt 75.45; Equity 61.94

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