What payoffs will bondholders get in a recession

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Problem 1: Good Time Company is a regional chain store. It will remain in business for one more year and then close. The probability of a boom last year is 60% and the probability of a recession is 40%. It is projected that the company will generate a cash flow of $126 million in a boom year and $51 million in a recession. The company's required debt payment at the end of the year is $75 million. The market value of the company's outstanding debt is $58 million due to the announcement of the closure. The company has a NOL so tax rate is 0%. What payoffs will bondholders get in a recession and boom scenarios and what is the expected return on the debt?

Reference no: EM132933365

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