Use the Information for the Question(s)below

question 7

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 to raise the funds for the initial investment the firm borrows $45,000 at the risk-free rate and issues new equity to cover the remainder.In this situation,calculate the value of the firm's levered equity from the project.What is the cost of capital for the firm's levered equity?

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Definitions:

Standing Army

A permanent, professional army maintained in times of peace as well as war, distinguishing it from temporary forces raised during emergencies.

Privilege

A special right, advantage, or immunity granted or available only to a particular person or group of people.

Legitimize

To make something legal, acceptable, or recognized according to law or social norms, often in reference to authority, rights, or offspring.

Absolute Power

A form of government where a single entity or individual holds complete control and authority over governance, without any constitutional limitations.