John is thinking to open a restaurant. He will run it only 1 year. Initial cost for opening a restaurant is 100k. Restaurant will generate EBIT of 200k at the end of year for sure. Risk-free rate is 5%. Tax rate is 35%.

(a)Suppose John's current wealth is20k. He can borrow money from a bank. Bank knows that his restaurant will generate EBIT of 200k at the end of year for sure.

1. In this situation, would he want to open the restaurant? What is the value of his equity of the restaurant (at t=0) if he opens it? (0.8pt)
2. If he opens the restaurant at t=0 and sell entire ownership of the restaurant to Peter at t=0, with what price can John sell the ownership? How much return did John make relative to his investment at t=0? (0.8pt)

(b)Suppose John has enough wealth to cover the initial cost of 100k. Assume that he can't borrowmoney.

1. In this situation, would he want to open the restaurant? What is the value of his equity of the restaurant (at t=0) if he opens it? (0.8pt)
2. If he opens the restaurant at t=0 and sell entire ownership of the restaurant to Peter at t=0, with what price can John sell the ownership? How much return did John make relative to his initial investment at t=0? (0.8pt)