Firm re-capitalized by borrowing

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An all equity firm worth $100 today will be worth either $150 or $80 in one year in the good and bad states respectively. What would be the returns to equity in each state of the world be if the firm re-capitalized by borrowing $60 (and paying this as a dividend to owners) at YTM=10%? Tax rate is zero.

Reference no: EM131070854

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