The All-Mine Corporation Is Deciding Whether to Invest in a New

Essay

The All-Mine Corporation 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.The predicted cash flows 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.Should the company take the project? What is the value of firm and its components before and after the project addition?