What is the value of the levered equity

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In one year from now, an investment project has a free cash flow of either 130,000 or 180,000 with equal probabilities. The required investment is 100,000 and the project’s unlevered cost of capital is 20%. The risk-free rate of interest is 10%.

Assume now that the required investment is financed with borrowed funds at an interest rate of 10% (equal to the risk-free rate). The debt is to be fully repaid as the actual free cash flow materialises by the end of the year.

What is the value of the levered equity? State your answer as a whole number without any decimal points.

Reference no: EM131829958

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