QUESTION 7 7 points Save Answer Merc is considering a new project whose success is uncertain. If it is successful Merc will be worth $145 million at the end of the year and if it fails, Merc will be worth only $65 million. The probability of success is 60% and the probability of failure is 40%. The firm has two alternatives to finance the project (1) all equity finance (ii) debt financing with $80 million of debt due at the end of the year. The risk-free rate is 6% and the project is expected to have a beta of O. There are no taxes, but the firm is expected to have financial distress if it borrows too much. (7 marks) a. Calculate the value of the firm without leverage (2 marks) b. Show the two expected outcomes for equityholders and debtholders with leverage (ie what are the equity and debt values when the project is success or failure) (2 marks) C. Calculate the value of the firm with leverage (1 marks) d. Calculate the value of the firm with leverage if debtholders only receive $45 million in the failure scenario because of financial distress. (2 marks)