At the present time, t = 0, your company has assets-in-place and $200m in cash. One period from now, t=1, assets-in-place will have a value of $600m, with probability 1/2, and $200m, with probability 1/2. The beta of these assets is zero. Your company also has an outstanding debt with face value $400m, due at t=1. The company has an investment project; that requires at t=0 an investment of $160m and will have a certain payoff of $200m at t=1. The risk-free rate is zero, and there are no taxes. 

a) Should your company take the project? 

b) Discuss how your answer would change if you finance this project with secured debt.

Answer rating: 100% (QA)

a To determine whether the company should take the project we need to assess the expected net presen... View the full answer