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(Solved): You are an entrepreneur starting a biotechnology firm. If your research is successful, the technolog ...



You are an entrepreneur starting a biotechnology firm. If your research is successful, the technology can be sold for $34 million. If your research is unsuccessful, it will be worth nothing. To fund your research, you need to raise $4.7 million. Investors are willing to provide you with $4.7 million in initial capital in exchange for 45% of the unlevered equity in the firm. a. What is the total market value of the firm without leverage? b. Suppose you borrow $0.7 million. According to MM, what fraction of the firm's equity will you need to sell to raise the additional $4.0 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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