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Rotomax Inc. has recently undertaken a lot of new ventures and borrowed a huge sum of money from the market. Currently, its face value of debt face equals $150 (all figures are in millions). The firm's assets will be worth either $200 (boom) or $135 (recession) next year. Currently, it has a new project that will generate $60 next year with certainty. The investment needed for this project is $52. Assume that probability of each state is 0.50. How much is this project opportunity worth? How much is the project opportunity worth to current equity holders if they have to finance the project by equity? Will the current shareholders be interested in investing in this project? Rotomax Inc. has recently undertaken a lot of new ventures and borrowed a huge sum of money from the market. Currently, its face value of debt face equals $150 (all figures are in millions). The firm's assets will be worth either $200 (boom) or $135 (recession) next year. Currently, it has a new project that will generate $60 next year with certainty. The investment needed for this project is $52. Assume that probability of each state is 0.50. How much is this project opportunity worth? How much is the project opportunity worth to current equity holders if they have to finance the project by equity? Will the current shareholders be interested in investing in this project?
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Answer rating: 100% (QA)
The project opportunity is worth 8 million To calculate the project opportunity value we need to calculate the expected net present value using the fo... View the full answer
Related Book For
Operations Management Managing Global Supply Chains
ISBN: 978-1506302935
1st edition
Authors: Ray R. Venkataraman, Jeffrey K. Pinto
Posted Date:
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