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:

Transdermal

Relating to or denoting a method of administering medication through the skin, typically via a patch, for systemic distribution.

Administration

The process of managing or overseeing the operations of a business, organization, or institution.

Dermis

The dermis is the thick layer of living tissue below the epidermis that forms the true skin, containing blood capillaries, nerve endings, sweat glands, hair follicles, and other structures.

Integumentary

Pertaining to the body's skin, hair, nails, and exocrine glands, which provide protection and sensation.