What is the npv of each project

Assignment Help Finance Basics

Reference no: EM131415133

A firm has $100 million in cash on hand and a debt obligation of $100 million due in the next period. With this cash, it can take on one of two projects-A or B-which cost $100 million each. Assume that the firm cannot raise any additional outside funds. If the economy is favorable, project A will pay $120 million and project B will pay $101 million. If the economy is unfavorable, project A will pay $60 million and project B will pay $101 million. Assume that investors are risk neutral, there are no taxes or direct costs of bankruptcy, the riskless interest rate is zero, and the probability of each state is .5.

a. What is the NPV of each project?

b. Which project will equity holders want the managers to take? Why?

Reference no: EM131415133

Questions Cloud

Learned about leadership and management : (1) Please pick a management topic that interests you and submit a one page, researched executive briefing paper. (2) Provide a brief 2-3 sentence summary of what you learned about leadership and management and why it is important to you.

Review the action and leadership of martin luther king jr : This paper takes the statesmanship definition and framework you created in your literature review and applies it to the decisions, actions, context, character, and overall leadership of Martin Luther King Jr.

Many corporations provide funding for research projects : A key criteria for a solid, credible research project is that it clearly delineates the research process, and the funding. Many corporations provide funding for research projects, which makes it worth discussing. What is the responsibility of these c..

Create one research question on the topic of the article : Get a copy of a local or regional newspaper or go to a newspaper's website. Find three articles that deal with social behavior or characteristics. List the name of the paper, the date of publication, and the headline for each of these articles. S..

What is the npv of each project : Assume that investors are risk neutral, there are no taxes or direct costs of bankruptcy, the riskless interest rate is zero, and the probability of each state is .5.

Primary purpose of statement of operations : Explain the primary purpose of statement of operations, and discuss important aspects of that statement. Explain how this statement relates to other key financial statements

What are the pros of using social media for market research : Marketers have traditionally used research methods such as focus groups, observation, trend analysis, and competitive research to help develop and gauge customer response to new products. What are the pros of using social media for market research? W..

Advantages-disadvantages of organisational decentralisation : Discuss the advantages and disadvantages of Organisational decentralisation?

How much would the firm receive for the debt : Suppose Nigel's firm sold a zero-coupon bond worth $44 at maturity next period. How much would the firm receive for the debt?

User Account

All Pages