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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 80 percent and the probability of a recession is 20 percent. It is projected that the company will generate a total cash flow of $204 million in a boom year and $95 million in a recession The company's required debt payment at the end of the year is $129 million. The market value of the company's outstanding debt is $102 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, e.g., 1,234,567. Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) Payoff b. What is the promised return on the company's debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Promised return c. What is the expected return on the company's debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Expected return 1%
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