CHAPTER 15 CLOSING CASEBUS 650Instructor: Sarakatsanis10/24/11Economic Growth ProbabilityWithout ExpansionWithExpansionLow0.3 $11,000,000 $13,000,000 Normal0.5 $17,500,000 $24,000,000 High0.2 $22,500,000 $28,500,000 Assignment:Without ExpansionWith ExpansionExpected value $16,550,000 $21,600,000 Answer:The company's shareholders would be better off with expansion as the expected value with expansion is higher.2. What is the expected value of the company's debt in one year, with and without the expansion? Expected value of debt = Expected Value of Min(value of the company, Outstanding Bonds face value)Answer:With ExpansionWithout ExpansionExpected value of debt $13,100,000 $13,700,000 3. One year from now, how much value creation is expected from the expansion? How much value is expected for stockholder? Bondholders? Answer:Value created from expansion = Change in value of the company due to expansionValue created from expansion $5,050,000 Net Value created by expansion = Value created from expansion - Investment needed for expansionNet Value created by expansion $550,000 Value creation from expansion would be the difference with and without expansion for respective type of investors.
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