What is the expected return on firms debt

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Reference no: EM131916207

Mellors Managment has debt of $1.2 million due at year end (P&I). The company's expected cash flow (no taxes) are $1 million with 40% probability and $2 million with 60% probability. Assuming the equity has an expected return of 25% and the firm is valued at $1.4 million;

1) What is the expected return on the firms debt?

2) How much does the firm's value decrease if bankruptcy costs $0.5 million?

3) What would be the expected return on equity in Mellors had no debt?

Reference no: EM131916207

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