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The predicted cash flows for the All-Mine Corporation are $4,500 in a good economy, $3,000 in an average economy, and $1,000 in a poor economy. Each economic outcome is equally likely and the promised debt repayment is $3,000. The firm is deciding whether to invest in a new project. The project would have to be financed by equity; the cost is $2,000 and will return $2,500 or 25% in one year. The discount rate for both bonds and stock is 15% and the tax rate is zero.

What is the value of the firm and its components before and after the project addition?

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  • Reference No.:- M948839

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