Question: (c) Suppose the initial $100,000 is instead raised by borrowing at the risk-free interest rate. What are the cash flows of the levered equity, and

(c) Suppose the initial $100,000 is instead raised by borrowing at the risk-free interest rate. What are the cash flows of the levered equity, and what is its initial value according to Modigliani and Miller? Debt payments are $110,000 and equity receives either $20,000 or $70,000. Initial value of levered equity is 129, 167 - 100, 000 = $29, 167

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