Question: kindly do all parts. need all parts solution Question 1 Suppose you are an investor seeking to find new opportunities to invest. You have identified

kindly do all parts. need all parts solution

Question 1 Suppose you are an investor seeking to find new opportunities to invest. You have identified two firms: LI Corporation and BT Enterprises. LI Corporation is debt free, while BT Enterprises is highly leveraged. Each firm is run by a manager/entrepreneur, who can exert two levels of effort: high or low. The project undertaken by the manager of each firm yields either a high return R" > 0 or a low return R 2 0, with Rf 0 or a low return Rf > 0. Does the amount of leverage of each firm affect its market value? Explain your answer. (40% of the marks)

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