CoinBase will generate a cash flow of $220M or $80M if next year the economy is in boom or recession respectively. The probability of recession is 30% and of boom is 70%. The firms outstanding debt has a market value today of $100M and is due in a year. The cost of debt (rD) is 8% and the unlevered cost of equity (rU) is 10%. The capital market is perfect.

21. You know that CoinBase will default in the recession state next year. What is the face value (promised payment) of CoinBases debt? (A) $ 127M (B) $ 120M (C) $ 112M (D) $ 108M