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Firm F has a loan of 1 billion due at the end of the year 2021. If the firm does nothing, its asset will be
Firm F has a loan of 1 billion due at the end of the year 2021. If the firm does nothing, its asset will be worth 0.9 billion, so it will need to file for bankruptcy. Instead, the firm can pursue a new strategy. Under this new strategy, the firm's assets will be worth 1.2 billion or 0.5 billion with equal probabilities. a. What will be the value of the firm's equity at the end of 2021 if the firm does not pursue the new strategy? b. What will be the value of the firm's debt at the end of 2021 if the firm does not pursue the new strategy? c. What will be the expected value of the firm's equity at the end of 2021 under the new strategy? d. What will be the expected value of the firm's debt at the end of 2021 under the new strategy? e. Will shareholders pursue this new strategy? Just answer yes or no. Firm F has a loan of 1 billion due at the end of the year 2021. If the firm does nothing, its asset will be worth 0.9 billion, so it will need to file for bankruptcy. Instead, the firm can pursue a new strategy. Under this new strategy, the firm's assets will be worth 1.2 billion or 0.5 billion with equal probabilities. a. What will be the value of the firm's equity at the end of 2021 if the firm does not pursue the new strategy? b. What will be the value of the firm's debt at the end of 2021 if the firm does not pursue the new strategy? c. What will be the expected value of the firm's equity at the end of 2021 under the new strategy? d. What will be the expected value of the firm's debt at the end of 2021 under the new strategy? e. Will shareholders pursue this new strategy? Just answer yes or no
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