Use the Information for the Question(s)below

question 91

Essay

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%.
-Suppose that you borrow only $45,000 in financing the project.According to MM proposition II,calculate the firm's equity cost of capital.

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Definitions:

Cash Outflow

The movement of money out of a business, typically as expenses or investments, resulting in a decrease in the company’s cash and cash equivalents.

Repay Principal

The process of paying back the original amount of money borrowed, not including interest, from a lender or creditor.

Paying Wages

The process of compensating employees for their labor, typically calculated by the hour, day, or based on output.

Cash Outflow

Money that is spent or transferred out of a business, reducing its cash balance.