A firm is worth $50 or $180 with equal probability and is financed with debt that has a face value of $60. It is considering a new project that is equally likely to be worth -$50 or +$40. The cost of capital is 12% for all securities.
-Refer to the information above. What will happen to the value of the firm if the new project is undertaken?
A) The value will decrease by $4.46.
B) The value will decrease by $5.00.
C) The value will increase by $10.00.
D) The value will decrease by $8.93.
Correct Answer:
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