Suppose the firm has an opportunity to do a project which cost $100 M and has payoffs of $99 M next period if a Bad state occurs, and $184 M next period if a Good state occurs. 

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(a) Fill in the following table and find present value of payoff to equity. Bad (1/2) Good (1/2) Total Payoff Payoff to Debt Payoff to Equity (b) Find the AN and P₁ to raise $100 million. (c) Find the proportion owned by old shareholders and new shareholders. (d) Fill in the following table for the payoff of the firm's equity. Project Good State Bad State No Project (a) Fill in the following table and find present value of payoff to equity. Bad (1/2) Good (1/2) Total Payoff Payoff to Debt Payoff to Equity (b) Find the AN and P₁ to raise $100 million. (c) Find the proportion owned by old shareholders and new shareholders. (d) Fill in the following table for the payoff of the firm's equity. Project Good State Bad State No Project

Answer rating: 100% (QA)

a Bad 12 Good 12 Total Payoff 99 184 Payoff to Debt 0 0 Payoff to Equity 99 184 ... View the full answer