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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...

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.

Top Answer

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

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