You are consulting with a firm in financial distress.
Probability Cash Flow
GOOD 0.6 $ 200 million
BAD 0.4 $ 75 million
Market Value of Debt is $ 80 million. Firm does not pay taxes.
a. In BAD times; what will the bondholder receive?
b. Compute the expected return to the bondholder.
a.The probability of Payment BAD times: =(0.4*75)=$30 million Market Value of Debt=$80 million The bondholder will... View the full answer