Compute the expected return to the bondholder

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Reference no: EM132018111

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.

Reference no: EM132018111

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