Use the information for the question(s) below Consider a project with free cash

Question

Use the information for the question(s) below Consider a project with free cash flows in one year of $90,000 in a weak economy or $117,000 in a strong economy, with each outcome being equally likely. The initial investment required for the project is $80,000, and the project's cost of capital is 15% The risk-free interest rate is 5%. 1) The NPV for this project is closest to: 2) Suppose that to raise the funds for the initial investment, the project is sold to investors as an all-equity firm. The equity holders will receive the cash flows of the project in one year. The market value of the unlevered equity for this project is closest to: 3) Suppose that to raise the funds for the initial investment the firm borrows $80,000 at the risk free rate, then the cash flow that equity holders will receive in one year in a weak economy is closest to: 4) Suppose that to raise the funds for the initial investment the firm borrows $80,000 at the risk free rate, then the cash flow that equity holders will receive in one year in a strong economy is closest to: 5) Suppose that to raise the funds for the initial investment the firm borrows $80,000 at the risk free rate, then the value of the firm's levered equity from the project is closest to

Explanation / Answer

1)

NPV of the project is

=expected cash flows in a year/(1+cost of capital)

=(50%*90000+50%*117000)/(1+15%)

=90000

the above is answer..

we do only one question based on Chegg rule

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