Mini Case $4\mathrm{.}1$ Consider a firm with a single asset $-$ an office building, which the firm has been leasing.

The firm's sole liability is a debt of EUR $40$ million due in one year. If left unchanged over the next

year, the office building will generate a free cash flow of EUR $20$ million through the leasing business

in one year. The firm also has the option to discontinue the leasing business and renovate the office

building into a luxury hotel at an upfront cost of EUR $40$ million. The new hotel will generate a free

cash flow of EUR $70$ million in one year. The risk$-$free interest rate is $6\%,$ and all market participants

are risk neutral. Assume there are no taxes. Answer the following questions:

a$.$ If the firm chooses to leave the building unchanged, what is the value of the firm's equity today?

What is the value of the debt today?

b$.$ What is the NPV of renovating the building?

c$.$ Suppose the firm raises $$40$ million from equity holders to renovate the building. If the firm

renovates the building, what is the value of the firm's equity today? What is the value of the

firm's debt today?

d$.$ Given your answer to part $($c$),$ would equity holders be willing to provide the $$40$ million

needed to renovate the building?