• Honeywell is evaluating a major project, which is expected to yield free cash flows in one year of $144,400 or $176,200, with each outcome being equally likely (weak vs. strong economiy). The initial investment for this project is $91,100, and the appropriate discount rate for this project is 25%. The risk-free interest rate is 8%.
• a. What is NPV of this project?
• b. How much can they raise if they sell the project ito investors as an all-equity firm (i.e., the initial market value of the unlevered equity)? The equity holders will receive the cash flows of the project in one year.
• c. Suppose, instead, they plan to raise the initial $91,100 by borrowing at the risk-free interest rate. What are the cash flows of the debt and the levered equity and its initial value according to MM (no frictions)?