Good Time Co. is a regional chain department store. It will remain in business for one more year. The estimated probability of a boom year for next year is .60 and the estimated probability of a recession year for next year is .40. It is projected that Good Time will have a total cash flow of $250 million in a boom year and $100 million in a recession. Good Time’s required debt payment next year is $150 million. The firm has few fixed assets, so assume that after next year is over the firm is liquidated for $0. Assume the appropriate annual discount rate for cash flows to both equity holders and debtholders is 12%. There are no corporate or personal taxes.

1. What is the total value of equity today assuming no bankruptcy costs
2. If equity has the value you calculated in part (a) and the debt on Good Time is currently selling for $108.93 million, what is the expected bankruptcy cost for Good Time?