1.cort Industries owns assets that will have​ a(n) 75 % probability of having a market value of $ 58 million one 1.cort Industries owns assets that will have​ a(n) 75 % probability of having a market value of $ 58 million one

1.cort Industries owns assets that will have​ a(n) 75 % probability of having a market value of $ 58 million one

year from now. There is a 25 % chance that the assets will be worth only $ 28 million. The current​ risk-free rate is 2 %​, and​ Acort’s assets have a cost of capital of 4 %. a. If Acort is​ unlevered, what is the current market value of its​ equity? b. Suppose instead that Acort has debt with a face value of $ 26 million due in one year. According to​ MM, what is the value of​ Acort’s equity in this​ case? c. What is the expected return of​ Acort’s equity without​ leverage? What is the expected return of​ Acort’s equity with​ leverage? d. What is the lowest possible realized return of​ Acort’s equity with and without​ leverage?

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