Acort Industries owns assets that will have a(n) 75% probability of having a market value of $51 million one year from now. There is a 25% chance that the assets will be worth only $21 million. The current risk-free rate is 10%, and Acort's assets have a cost of capital of 20%. 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 $20 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?
