(10 points) A bank extended $90 million of loans to a retailer now 90+ days slow in payment; the loan is in non-accrual status and rated substandard. The bank can either seize collateral with a net present value believed to approximate $50 million or workout the slow, troubled and classified loan. The retailer has proposed a workout whereby the firm would pay nothing for one year and then $4.0 million on a semi-annual basis for seven years. The bank has set the discount rate for evaluation of the of the restructured loan equal to the yield-to-maturity of Rite Aid debt. The drug chain is rated Caal by Moody's and has an eight-year note with a coupon of 7.70% (payable on a semi-annual basis) priced at 98 (per $100 par). First, derive the yield-to-maturity of Rite Aid debt. Second, estimate the present value of the workout based on that yield. Third, recommend the best alternative (i.e., least bad solution) for the bank to resolve the slow and classified loan. Fourth, note the implication of the loss projected on the bank's ALLL. (10 points) A bank extended $90 million of loans to a retailer now 90+ days slow in payment; the loan is in non-accrual status and rated substandard. The bank can either seize collateral with a net present value believed to approximate $50 million or workout the slow, troubled and classified loan. The retailer has proposed a workout whereby the firm would pay nothing for one year and then $4.0 million on a semi-annual basis for seven years. The bank has set the discount rate for evaluation of the of the restructured loan equal to the yield-to-maturity of Rite Aid debt. The drug chain is rated Caal by Moody's and has an eight-year note with a coupon of 7.70% (payable on a semi-annual basis) priced at 98 (per $100 par). First, derive the yield-to-maturity of Rite Aid debt. Second, estimate the present value of the workout based on that yield. Third, recommend the best alternative (i.e., least bad solution) for the bank to resolve the slow and classified loan. Fourth, note the implication of the loss projected on the bank's ALLL