Question: Gator Software has just completed an R&D project that required borrowing senior debt from a bank.The bank has been promised that it will be repaid

Gator Software has just completed an R&D project that required borrowing senior debt from a bank.The bank has been promised that it will be repaid $140 million next year.This R&D effort has resulted in an investment opportunity that will cost an additional $200 million today and will result in a cash flow next year of $180 million with probability .5 and $420 million with probability .5.The firm has no cash on hand and no other assets except for this investment opportunity.Given this data, in an efficient market could the firm fund the investment project today with an issue of equity?In other words, given this data, is it possible to sell $200 million in new equity.Justify your answer with the relevant calculations. [Hint: this is related to the underinvesting in safe projects example of Chapter 17.]

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