An all-equity firm consists of a single project that will produce a perpetial cash flow of either $100M(800d state) or $30M (bad state) next year. The probability of the good state is 30 percent. The beta of the asset cash flows is 1.25, the risk-free rate is 3 percent, and the market risk premium is 8 percent. There are 6M shares outstanding. Suppose the firm announces it will hsue 540M in debt. The debt has an interest rate of 8 percent, and will mature in 3 years. Because the debt is _any bankruptcy costs would _ the firm's share price after the announcement. risky, lower risky, raise sale, not change Question 21 (5 points) 3 sinet Tomorrow your firm will issue 30K one-year zero-coupan bonds priced at $800 per bond. The bonds have a promised cash flow, Le. face value, of $900. If the flim does not default, it can fully repay the bonds. If the firm defauls, the value of assets will equal 525M and the firm will pay $39 in bankruptcy costs. What is the promised rate of return on these bonds? 0.11 0.12 0.13 Question 22 (2 points) sund Tomorrow your firm will lisue 30K one-vear zero-coupon bonds priced at $800 per bond. The bonds huve a promised cash flow, Le. face value, of $900. If the firm does not default, it can fully repay the bends. If the firm defaults, the value of assets will equal 525M and the firm will par 53M in barkruptey costs. If the expected retum on these bonds equals 6 percent, what is the probability of defaut implied by the bonds' expected return? 0.31 0.50 0.72 Question 23 (2 points) 7. Sinet Tomorrow your firm wall issue 30K one-year zero-coupon bonds priced at $800 per bond. The bonds have a promised cawh flow, Le. face value, of 5900 . If the firm does not default, it can fully repay the bonds. If the firm defaults, the value of assets will equal 525M and the firm will pay 53M in bankruptcy costs. 5uppose that the probability of detailt becomes 40 percent what would be the erpected return on these bands? oor 0.04 0.06