Data for questions 56, 57 and 58 Assuming it maintains its current strategy, a firm will be worth $910,000 one year from now. The firm owes $1,010,000 in debt that is due one year from now. The firm could undertake a new strategy that requires no upfront investment but will only have a 50% chance of success. If the new strategy is successful, the value of the firm one year from now will be $1,300,000 but if it fails the value of the firms assets will fall to only $300,000 one year from now.

Question 56 What is the expected value of the firm one year from now if it undertakes the new strategy?

a) $800,000 b) $1,300,000 c) $700,000 d) $700,000 e) $910,000

Question 57 If the firm undertakes the new strategy, what is the expected cost of such decision to the existing debtholders? a) $210,000 b) $90,000 c) $330,000 d) $110,000 e) $700,000

Question 58 Would shareholders be in favour of this?

a) Yes, it would increase the value of the firm. b) No, it would only strengthen the debtholders claim. c) Both they and debtholders would be indifferent as the company will go insolvent anyway. d) They would be in favour of it because if successful shareholders will benefit. e) None of the above.

Show work/explanations for all 3 parts! thanks you