Suppose a firm borrows $100 at 10% and is considering a project that costs $100. Assume the

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Suppose a firm borrows $100 at 10% and is considering a project that costs $100. Assume the firm(prior to getting the $100 loan) also has $15 in cash on the balance sheet. The project has 50/50 chance of paying $75 or $135;so the firm will have the proceeds from the project (i.e. the $75 or $135) plus the $15 in cash to pay off the loan. What is expected pay off to the equity under limited liability?

Posted Date: Sep 11, 2021 11:00 PM

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Suppose a firm borrows $100 at 10% and is considering a project that costs $100. Assume the

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The expected Return is 500 if you proceed with the project 1500 Cash in your balance sheet is ... View the full answer

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