1. The firm is considering an investment project costing $1. What is the amount by which the project’s value must exceed its cost in order for shareholders to be willing to pay for it? Repeat for project values of $10 and $25.
2. Now suppose the firm finances the project by issuing debt that haslower priority than existing debt. How much must a $1, $10, or $25 project be worth if the shareholders are willing to fund it?
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