Two separate firms are considering investing in this project. Firm unlevered plans to fund the ...

Initial Value   C/F Strong Economy   C/F Weak Economy   Returns Strong Economy   Returns Weak Economy   Expected Return
Debt   $45,000    $47,250     $47,250    5%   5%   5%
Levered Equity   $45,000    $69,750     $42,750    55%   -5%   25%
                  
Unlevered Equity   $90,000    $117,000     $90,000    30%   0%   15%

PV(equity cash flows) =   = $90,000
C/F (weak economy) = $90,000 (unlevered) - $45,000(1.05) (debt) = $42,750 (levered)
C/F (strong economy) = $117,000 (unlevered) - $45,000(1.05) (debt) = $69,750 (levered)
Returns = 
Expected return = .5(strong return) + .5(weak return)