Create risk but instead amplifies project risk

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Reference no: EM132004099

Using the information demonstrate leverage does not create risk but instead amplifies project risk, show all work.

Initial investment is $1,000

End of year value:

Strong demand $2,000 Probability 50%

weak demand $1,000 Probability 50%

Levered firm created by borrowing half the firm’s value and using that to buy back shares.

Hurdle return 12% and risk free rate 5%.

Reference no: EM132004099

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