Question: Hey can someone help me with this problem please. Consider a project with free cash flows in one year of $145,232 in a weak market
Consider a project with free cash flows in one year of $145,232 in a weak market or $168,813 in a strong market, with each outcome being equally likely. The initial investment required for the project is $65,000, and the project's unlevered cost of capital is 12%. The risk-free interest rate is 9%. (Assume no taxes or distress costs.) a. What is the NPV of this project? b. Suppose that to raise the funds for the initial investment, the project is sold to investors as an allequity fim. The equity holders will receive the cash flows of the project in one year. How much money can be raised in this way - that is, what is the initial market value of the unlevered equity? c. Suppose the initial $65,000 is instead raised by borrowing at the risk.free interest rate. What are the cash flows of the levered equity in a weak market and a strong market at the end of year 1 , and what is its initial market value of the lovered equity according to MM? Assume that the risk-free rate remains at its current level and ignore any arbitrage opportunity. a. What is the NPV of this project? The NPV is 5 (Round to the nearest dollar.) b. Suppose that to raise the funds for the initial investment, the project is sold to investors as an at-equity fimm the equity holders will receive the cash flows of the project in one year. How much money can be raised in this way that is, what is the initial market value of the unlevered equity? The initial market value of the unlevered equity is $ (Round to the nearest dollar.) c. Suppose the initial $65,000 is instead raised by borrowing at the tisk-free interest rate. What are the cesh flows of the levered equity in a weak market and a strong market at the end of year 1 , and what is ins intital market value of the lovered equity according to MM? The cash tlows of the levered equity in a weak market and a strong market at the end of year 1 , and the initial market yalue of the levered equity according to MM is: (Round to the nearest dollar.)
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