How much equity and debt on good times

Reference no: EM132206298

Question - A firm is currently valued at $100. They owe $98 in debt (including interest and other payments). The firm has 2 projects to choose from

Project 1: discount rate = 10%, invest $2 now, in a good economy, the firm gets paid $1.1 and in a bad economy, the firm loses $2.2

Project 2: discount rate = 5%, invest $0.2 now, in a good economy, the firm gets paid $1.2 and in a bad economy, the firm loses $0.6

1. What is NPV on 1st project?

2. What is NPV on 2nd project?

3. How much equity and debt on good times and bad times on both projects.

Reference no: EM132206298

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