Question: Consider a firm whose only asset is a plot of vacant land, and whose only liability is debt of $12.6 million due in one year.

Consider a firm whose only asset is a plot of vacant land, and whose only liability is debt of $12.6 million due in one year. If left vacant, the land will be worth $10.5 million in one year. Alternatively, the firm can develop the land at an upfront cost of $18 million. The developed land will be worth $31.5 million in one year. Suppose the risk-free interest rate is 5%, assume all cash flows are risk-free, and assume there are no taxes.

a. If the firm chooses not to develop the land, the value of the firm's equity today is $ million.

b. Suppose the firm raises $18 million from equity holders to develop the land. If the firm develops the land, the value of the firm's equity is $ ( )million. (Input number only as your answer. Round it to the nearest whole number.) The value of the firm's debt today is $( ) million.

c. If equity holders decide not to develop the land, the agency cost (value destroyed) is $( ) million in today's dollars.

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