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Good Time Company is a regional chain department store. It will remain in business for one more year. The probability of a boom year is
Good Time Company is a regional chain department store. It will remain in business for one more year. The probability of a boom year is percent and the probability of a recession is percent. It is projected that the company will generate a total cash flow of $ million in a boom year and $ million in a recession. The company's required debt payment at the end of the year is $ million. The market value of the companys outstanding debt is $ million. The company pays no taxes.
a What payoff do bondholders expect to receive in the event of a recession? Enter your answer in dollars, not millions of dollars.
b What is the promised return on the company's debt? Enter your answer as a percent rounded to decimal places, eg
c What is the expected return on the company's debt? Enter your answer as a percent rounded to decimal places, eg
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