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Compute the value of debt of KL

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Question - KL is ready to launch a new product. Depending upon the success of this product, KL will have a value of either $50 million, $60 million, or $70 million, with each outcome being equally likely. The project has a beta of 0 and a cost of capital equal to the risk-free rate, which is currently 5%. Assume that the capital markets are perfect. Suppose that KL has zero-coupon debt with $55 million due next year. Compute the value of debt of KL?

a. $50.79 million

b. $49.79 million

c. $52.79 million

d. $51.79 million

Reference no: EM132558847

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