Use the Information for the Question(s)below

question 72

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 value of the firm's levered equity from the project is closest to:

• A)$0.
• B)$50,000.
• C)$90,000.
• D)$40,000.

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Definitions:

Cost Leadership

A strategy where a company aims to become the lowest cost producer in the industry to gain a competitive advantage.

Singularity

A hypothetical future point at which technological growth becomes uncontrollable and irreversible, resulting in unforeseeable changes to human civilization.

Long-Term Success

Achieving a consistent level of goal attainment and positive outcomes over an extended period.

Perceived Benefits

The advantages or improvements believed to be associated with a product or service from the consumer's perspective.