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What is the cost of capital of this debt

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Reference no: EM132072748

You expect your firm to be worth $50, $100, or $120 with probabilities 1/10, 6/10 and 3/10, respectively. You can raise $75 in debt proceeds today if you promise an interest rate of 10%. If this is how you finance your firm, then your cost of equity capital is 20%.

1. What is the expected payoff of your firm?

2. What is the promised value of the debt?

3. What is the cost of capital of this debt?

4. What is the value of your equity?

Reference no: EM132072748

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