A New Business Opportunity Has a 70% Chance of Being

question 12

Multiple Choice

A new business opportunity has a 70% chance of being worth $500,000 next year and a 30% chance of being worth $100,000. The appropriate expected rate of return is 10%.
-Refer to the information above. The new opportunity will be financed with a $150,000 bank loan. What is the expected future payoff for the levered equity holder? Round your answer to
The nearest dollar.

• A)$245,000
• B)$195,455
• C)$222,727
• D)$215,000

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Definitions:

Survival

The ability of an organism, individual, or organization to continue existing and functioning in spite of environmental challenges or threats.

First-Mover Advantage

The advantage in competition acquired by the first major player in a market niche.

Market Niche

A specific segment of the market on which a business focuses its products or services, often defined by unique customer needs or preferences.

Competitors

Entities that vie for the same customers or market share in a particular industry, often driving innovation and customer choice.