# This post addresses the levered equity calculation.

Use the information for the question(s) below.

Consider a project with free cash flows in one year of $90,000 in a weak economy or $117,000 in a strong economy, with each outcome being equally likely. The initial investment required for the project is $80,000, and the project's cost of capital is 15%. The risk-free interest rate is 5%.

Suppose that to raise the funds for the initial investment the firm borrows $80,000 at the risk free rate, then the value of the firm's levered equity from the project is closest to:

A. $6,000

B. $0

C. $8,600

D. $10,000

https://brainmass.com/business/issuing-equity/this-post-addresses-the-levered-equity-calculation-471162

#### Solution Summary

The solution provides the correct answer with supporting calculations to determine the value of the firm's levered equity from the project.

$2.19