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What is expected pay off to equity under limited liability

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Problem 1: Suppose a firm borrows $100 at 10% and is considering a project that costs $100. Assume the firm(prior to getting the $100 loan) also has $15 in cash on the balance sheet. The project has 50/50 chance of paying $75 or $135;so the firm will have the proceeds from the project (i.e. the $75 or $135) plus the $15 in cash to pay off the loan. What is expected pay off to the equity under limited liability?

Reference no: EM132988379

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