Total market value of the firm without leverage

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Reference no: EM131816255

You are an entrepreneur starting a biotechnology firm. If your research is successful, the technology can be sold for $27 million. If your research is unsuccessful, it will be worth nothing. To fund your research, you need to raise $ 3.6 million. Investors are willing to provide you with $ 3.6 million in initial capital in exchange for 25% of the unlevered equity in the firm. a. What is the total market value of the firm without leverage? b. Suppose you borrow $ 0.9 million. According to MM, what fraction of the firm's equity will you need to sell to raise the additional $ 2.7 million you need? c. What is the value of your share of the firm's equity in cases (a) and (b)?

Reference no: EM131816255

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