Use the Information for the Question(s)below

question 49

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 $80,000 at the risk-free rate,then the cash flow that equity holders will receive in one year in a weak economy is closest to:

• A)$6000.
• B)$10,000.
• C)$0.
• D)$33,000.

---

Definitions:

Federal Budget Deficit

is the financial shortfall when the government's expenditures exceed its revenues within a given fiscal year.

National Debt

The total amount of money that a country's government has borrowed, by various means, to fund its activities beyond its revenues.

Budget Act

A legislative act that governs budgetary allocations and the process of budget creation and approval by a government.

Marginal Tax Rate

Additional taxes paid divided by taxable income.