Question

You are an entrepreneur starting a biotechnology firm.

If your research is? successful, the technology can be sold for $20 million.

If your research is? unsuccessful, it will be worth nothing. To fund your? research, you need to raise $2.3million.

Investors are willing to provide you with $2.3million in initial capital in exchange for 30% of the unlevered equity in the firm.

Market value without leverage: $7.7 Million

A. Suppose you borrow $ 0.6 million. According to? MM, what fraction of the? firm's equity will you need to sell to raise the additional $ 1.7 million you? need? The fraction of the? firm's equity will you need to sell is?

Answer 1