Question: INCLUDE WRITTEN SOLUTION WestAce will generate a terminal cash flow of $228M or $72M in one year, each with equal likelihood. WestAce's outstanding debt has

INCLUDE WRITTEN SOLUTION WestAce will generate a terminal cash flow of

INCLUDE WRITTEN SOLUTION WestAce will generate a terminal cash flow of $228M or $72M in one year, each with equal likelihood. WestAce's outstanding debt has a correct market value today of $80M and is due in a year. The cost of debt (D) is 8% and the unlevered cost of equity (ru) is 20%. The capital market is perfect (no taxes, distress costs, etc.) What is the cost of equity for WestAce? 35% 37% 39% 41%

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