Use the Information for the Question(s)below

question 59

Multiple Choice

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 to raise the funds for the initial investment the firm borrows $40,000 at the risk-free rate and issues new equity to cover the remainder.In this situation,the cash flow that equity holders will receive in one year in a strong economy is closest to:

• A)$117,000.
• B)$75,000.
• C)$50,000.
• D)$0.

---

Definitions:

Public Education

A universally accessible system funded and administered by government agencies aiming to provide free education to all children.

Property Taxes

Levies on property ownership, typically based on the property's value, used to fund local services such as schools, roads, and public safety.

Progressive Tax System

A taxation system where the tax rate increases as the taxable income increases, considered more equitable by distributing the tax burden according to ability to pay.

Marginal Tax Rate

The rate at which the next dollar of taxable income is taxed, reflecting the percentage of tax paid on the last dollar earned.