Q 18.21. Go back to the oil rig example, which is worth either $50 or $150 with
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Q 18.21. Go back to the oil rig example, which is worth either $50 or $150 with 50-50 probability. But now assume that there is an additional cost to issuing debt-perhaps because these types of firms are more likely to go bankrupt and incur the wrath (fees) of the legal profession. 1. If these fees are expected to be $10, how much will the good firms, the bad firms, and the lawyers get to keep? 2. If these fees are expected to be $15, how much will the good firms, the bad firms, and the lawyers get to keep? (You are not expected to get the answer right, but give it a stab.)
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