Question: HAL Corporation is introducing a new artificial intelligence product. There are three possible outcomes: If the product is highly successful, the company will be worth
HAL Corporation is introducing a new artificial intelligence product. There are three possible outcomes: If the product is highly successful, the company will be worth $900 million, if moderately successful $500 million, if a complete failure $121 million. Each outcome is equally likely. The results will be known two years from today. There are no taxes on income or capital gains. a. If the risk-free rate of return is 10%, what is the maximum amount of risk-free debt HAL can issue? b. If HAL's unlevered equity premium is 8%, what is the unlevered value of HAL today? c. What is HAL's unlevered cost of capital? d. What is HAL's cost of capital if it raises $100 million by issuing debt? What is the cost of equity and debt, respectively? What is HAL'S WACC? Show your calculation
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