What is the total market value of the firm without leverage

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Question - You are an entrepreneur starting a biotechnology firm. If your research is successful, the technology can be sold for $25 million. If your research is unsuccessful, it will be worth nothing. To fund your research, you need to raise $5.5 million. Investors are willing to provide you with $5.5 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 $0.7 million. According to MM, what fraction of the firm's equity will you need to sell to raise the additional $4.8 million you need?

c. What is the value of your share of the? firm's equity in cases (a) and (b)?

Reference no: EM132919856

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