4. Debt overhang problem Your company, Shamrock Shakes, Inc., is in financial distress. You currently have debt outstanding that is owed $100 million one year from today. The assets in place will either be worth $60 at the end of the year or they will be worth $140 at the end of the year, and each of these outcomes is equally likely. Assume that the risk free rate is zero percent and that all investors are risk-neutral (all this means is that we don't have to "discount" next years expected value back to time zero dollars -- next year's expected value will equal todays value of any security.) Complete the following table for the expected value of the assets of the firm and the value of the debt and equity in each state 5) Expected Value State Assets in place Payoff to debt Payoff to equity Bad (prob.-.5) Good (prob, $60 million $140 million a. What is the value of the debt of Shamrock Shakes? b. What is the value of the equity of Shamrock Shakes? c. What is the value of the company Shamrock Shakes? d. Suppose that management uncovers a new investment that would cost $50 million today to undertake and would generate $40 million in the "bad state" (same state as in above table) and would generate $75 million in the "good state" (same state as in above table). The firm would need to raise the $50 million with externalfinancing. Notice that the project is positive NPV =-$50M + (.5)($40M) + (.5)($75M) = $7.5M Assuming that management would have to sell new equity to fund this new investment, what proportion of the firm's equity would it need to give to the NEW stockholders in order to raise $50M? Assuming that management will only raise the money for the new investment and make the new investment if that is in the interest of the existing common stockholders, will the management issue the new equity and make the investment