Use the Information for the Question(s)below

question 48

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 strong economy is closest to:

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

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Definitions:

Market

A venue where buyers and sellers interact to trade goods, services, or financial instruments.

Supply Product

The total amount of goods or services available for purchase at any given price point.

Market Price

The current value at which a good or service can be bought or sold in a particular market.

Market

A venue or system where buyers and sellers interact to trade goods, services, or financial instruments, establishing prices and quantities through supply and demand.