What is the prevailing cost of capital

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Reference no: EM131235139

A new project has the following success probabilities

	Failure	Success	Buyout
Pith	10%	85%	5%
Payoff (in millions)	550	5200	5900

Assume risk neutrality. If a $100 bond collateralized by this project promises an interest rate of 8%, then what is the prevailing cost of capital, and what do shareholders receive if the buyout materializes.

Reference no: EM131235139

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