Western Disposal Systems Example

Western Disposal Systems Example - probability). •...

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Western Disposal Systems Liquidation vs. Continued Operations Western Disposal Services has filed for bankruptcy under Chapter 11. Western’s current debt obligation is $1000 with a coupon rate of 12% and the market value of its assets is $975. The equity-holders unanimously agree that the cash flows next period are either $1,350 (with 70% probability) or $750 (30%
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Unformatted text preview: probability). • However, the debtholders feel that these cash flows are grossly overestimated and the firm must therefore be liquidated. • What is the minimum side-payment that the debtholders must make to the equityholders in order to force the liquidation of the firm? Assume the market discount rate is 12%....
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This note was uploaded on 01/15/2010 for the course FIN 357 taught by Professor Hadaway during the Fall '06 term at University of Texas.

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