1. Bruce Willos is producing a new action movie featuring himself but the female star that was initially hired has decided to quit for unspecified reasons. Without a replacement, financial experts reckon that there is a 1/3 chance that the movie will turn out to be a success generating earnings of about $80million and a 2/3 chance of being a flop, still generating $20 million thanks to Bruce Willos's brand name recognition. Bruce Willos has financed the movie so far out of personal equity but he also had to take some debt and the outstanding face value of this debt stands currently at $60 million. (a) Bruce Willos can hire Catherine Zebra-Bones for about $5 million. Analysts reckon that this would probably increase the chances of success from 1/3 to 2/3. Is the new hire a positive NPV project? Will Bruce do it if he is the one to fork out the money? (b) Bad news: Catherine Zebra-Bones can't do it because of family problems. The other possibility is to go for Cameleon Dial. Cameleon has heard of the Zebra-Bones offer and won't do it for less than $5million. Analysts reckon that this hiring will still positively impact on the chances of success but will only increase the probability of success from 1/3 to 1/2. Will Bruce go ahead with this new hire if again he has to finance himself Cameleon's wages? Discuss. (c) The banks who have lent the money become aware of the Cameleon Dial situation. They offer to renegotiate the face value of debt. Bruce is a tough guy and always gets the best possible deal. If so, what would be the new face value of debt that ensures that Bruce pays for the new hire? Discuss. (d) Would it help if instead of Bruce financing himself the extra $5 million, he would instead decide to sell some shares in the new movie to some outside shareholders? Discuss