Homework: HW2 - Chapter 14 MM 1958 Save Score: 0 of 12 pts 1 of 9 (0 complete) HW Score: 0%, 0 of 100 pts P14-1 (similar to) Question Help Consider a project with free cash flows in one year of $145,200 or $173,800, with each outcome being equally likely. The initial investment required for the project is $90,400, and the project's cost of capital is 25%. The risk-free interest rate is 6% 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 all-equity firm. The equity holders will receive the cash flows of the project in one year. How much money can be raised in this waythat is, what is the initial market value of the unlevered equity? c. Suppose the initial $90,400 is instead raised by borrowing at the risk-free interest rate. What are the cash flows of the levered equity, what is its initial value and what is the initial equity according to MM? a. What is the NPV of this project? The NPV is $ 37200. (Round to the nearest dollar.) that is, what is b. Suppose that to raise the funds for the initial investment, the project is sold to investors as an all-equity firm. The equity holders will receive the cash flows of the project in one year. How much money can be raised in this way the initial market value of the unlevered equity? The initial market value of the unlevered equity is $ 127600. (Round to the nearest dollar.) c. Suppose the initial $90,400 is instead raised by borrowing at the risk-free interest rate. What are the cash flows of the levered equity, what is its initial value and what is the initial equity according to MM? The cash flows of the levered equity and its initial values according to MM are: (Round to the nearest dollar.) Date 1 Date 0 Initial Value $90,400 Cash Flow Strong Economy Cash Flow Weak Economy Debt Levered Equity $