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You are currently doing research on Kensington Corporation, a levered firm that appears to be financially distressed. Your goal is to infer the probability that this firm goes into default and the estimated bond repayment in the default state using available market data. The firm has two bonds outstanding: Bond A and Bond B. Bond A is senior to Bond B, meaning that it has first claim to the cash flows generated by the firm. a) Bond B has a current price of $850, one year until maturity, a promised cash flow of $1,100 next year, and an expected return of 5 percent. If Kensington defaults, then Bond B pays a cash flow of zero (this is because Bond A claims all available cash flows first). What is the probability of default implied by this information? b) Bond A has a current price of $925, one year until maturity, a promised cash flow of $1,075 next year, and an expected return of 4 percent. The probability of default is given by your answer in part (a). Based on this information, what is the cash flow to Bond A in the default state? (the cash flow in the default state is also known as the recovery cash flow) step by step work without excel.
The December 31, 2013, balance sheet of Schism, Inc., showed long-term debt of $1,430,000, and the December 31, 2014, balance sheet showed long-term debt of $1,640,000. The 2014 income statement showed an interest expense of $97,000. Required: What w..
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Explain the theory behind the concept of "required return" on proposed capital investments.
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everest has also found that after only two years of using a machine for a semi-automatic process a more advanced model
What is the traditional gold standard, how does it differ from our current monetary system, and how does it work to resolve trade imbalances? Give an example. What are the advantages to being on a gold standard and what are the drawbacks? What is the..
All of the following are useful purposes of pro forma financing except?
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Describe the consumption-smoothing benefits and moral hazard costs of coverage for contact lenses, prescription drugs, and accidents and acute illnesses.
What was its liabilities-to-assets ratio, in book and market value? - What was its financial-debt-to-capital ratio, in book value and market value?
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