What fraction of ownership in your idea do you need to sell

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Reference no: EM131921213

1. You have an idea that requires an investment of $60 today, and is expected to produce $104.5 in one period. Given the riskiness of your idea, the appropriate discount rate is 10%. You raise $30 by issuing debt at YTM=0%, and you will sell equity in order to raise the remainder. What fraction of ownership in your idea (what percentage of E) do you need to sell? Tax rate is 0%.

A. 46.2%

B. 50.0%

C. 28.7%

D. 45.5%

2. One time period from today, the firm assets will be worth either $40 in the good state or $26 in the bad state. Each state is equally likely to occur. The firm has zero-coupon debt that is worth $19 today has face value=$20 due in one period. The firm's WACC is 10%. What is the expected return on equity? Tax rate is 0%.

A. 7.6%

B. 51.5%

C. 18.2%

D. 10.0%

Reference no: EM131921213

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