Question: Suppose you borrow $ 4 0 2 2 7 . 9 2 M when financing a gym with a cost of $ 8 9 9
Suppose you borrow $M when financing a gymwith acost of $M You expect to generate a cash flow of $M at the end of the year if demand is weak, $M if demand is as expected and $M if demand is strong. Each scenario is equally likely. The current riskfree interest rate is risk of debt and there's a risk premium for the risk of the assets.What is the expected return of equity?
HINT: If you need it to compute the WACC of the firm, add the risk free plus the risk prem
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