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Wolfrum Technology? (WT) has no debt. Its assets will be worth ?$437 million one year from now if the economy is? strong, but only ?$237 million in one year if the economy is weak. Both events are equally likely. The market value today of its assets is ?$258 million.
a. What is the expected return of WT stock without? leverage?
b. Suppose the? risk-free interest rate is 5%. If WT borrows ?$56 million today at this rate and uses the proceeds to pay an immediate cash? dividend, what will be the market value of its equity just after the dividend is? paid, according to? MM?
c. What is the expected return of WT stock after the dividend is paid in part ?(b?)?
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