Since this is a quiz question, I will try my best to clarify the question withough giving away the answer -
Feb 18 2013 10:34 PM
Project needs $100 mn investment
This $100mn can be a combination of equity + debt
Obviously higher the debt, higher the ROI if the project is successful
Whatever debt you take has to pay back an annual interest of 10%
So you have your initial investment = $100mn (subtract the debt from this to get the equity investment)
Then from you final returns, subtract the debt to paid back along with the interest expense.
So now you have your initial equity investment and final equity returns. and expected ROI. You should be able to backtrack the formula to find the right amount of debt.
Hope this is helpful
Feb 09 2013 10:01 AM Delete