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What is the npv of developing the? land

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Consider a firm whose only asset is a plot of vacant? land, and whose only liability is debt of $15.1 million due in one year. If left? vacant, the land will be worth $9.8 million in one year.? Alternatively, the firm can develop the land at an upfront cost of $20.4 million. The developed land will be worth $34.4 million in one year. Suppose the? risk-free interest rate is 10.4%?, assume all cash flows are? risk-free, and assume there are no taxes.

a. If the firm chooses not to develop the? land, what is the value of the? firm's equity? today? What is the value of the debt? today?

b. What is the NPV of developing the? land?

c. Suppose the firm raises $20.4 million from the equity holders to develop the land. If the firm develops the? land, what is the value of the? firm's equity? today? What is the value of the? firm's debt? today?

d. Given your answer to part ?(c?), would equity holders be willing to provide the $20.4 million needed to develop the? land?

Reference no: EM132627516

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