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    Total market value of the firm without leverage

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    C14 P2

    You are an entrepreneur starting a biotechnology firm. If your research is successful, the technology can be sold for $30 million. If your research is unsuccessful, it will be worth nothing. To fund your research, you need to raise $2million. Investors are willing to provide you with $2 million in initial capital in exchange for 50% of the unlevered equity in the firm.

    a) What is the total market value of the firm without leverage?
    b) Suppose you borrow $1 million. According to MM, what friction of the firm's equity will you need to sell to raise the additional $1 million you need?
    c) What is the value of your share of the firm's equity in cases (a) and (b)?

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    https://brainmass.com/business/capital-structure-and-firm-value/total-market-value-firm-without-leverage-401812

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    C14 P2

    You are an entrepreneur starting a biotechnology firm. If your research is successful, the technology can be sold for $30 million. If your research is ...

    Solution Summary

    The total market value of the firm without leverages are examined. The firm's equity from selling an additional $1 million. The value of a share is determined.

    $2.19

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