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Firm B consist of single one period project requiring an investment I=15 million in the current period (T=0) and giving a return of 32%. After the project pays off at t=1 the firm is terminated. The appropriate discount rate is 16%. The payoff on the project at t=1 is the only source of value. The founder of the firm B wants to issue enough equity to fund the project and give herself a dividend of 1 million in the current period. Can she do this? If so, what is the value of the equity she will remain?

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Financial Management, Finance

Category:- Financial Management
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