Use the Information for the Question(s)below

question 42

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 weak economy is closest to:

• A)$90,000.
• B)$0.
• C)$50,000.
• D)$48,000.

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Definitions:

Jurisdictions

The official power to make legal decisions and judgments, often referred to in context of geographical area or scope of legal authority.

Liability

The state of being legally responsible (liable) for something, such as a debt or obligation.

Jury

A group of citizens convened to render an impartial verdict (a finding of fact on a question) officially submitted to them by a court.

Litigation Process

The sequence of actions involved in bringing and pursuing a lawsuit, including filing a complaint, discovery, trial, and possibly appeal.