Harvest corporation is about to launch new product

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Reference no: EM131890288

Harvest Corporation is about to launch a new product. Depending on the success of the new product, the company may have one of four values next year: $150 million, $135 million, $95 million, or $80 million. These outcomes are all equally likely, and this risk is diversifiable. Suppose the risk-free interest rate is 5% and that, in the event of default, 25% of the value of Harvest’s assets will be lost to bankruptcy costs. (Ignore all other market imperfections, such as taxes.) Now, suppose Harvest Corporation borrows $100 million dollars on a one-year note to finance the project.

The new, leveraged value of Harvest Corporation's equity is $ __________ million.

Feedback:Use the weighted average of the possible values of the company's equity at the one-year mark, remembering to take into account that the debt must be repaid (if it can be).

Reference no: EM131890288

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