Name Worksheet 11. Suppose a company borrows $1 million debt to invest in a project that generates uncertain cash flow of 0~$2 million. The debt has to be repaid (interest rate is zero) when the project's cash flow is realized. 1. No bankruptcy costs and no renegotiations. DEBT VALUE (SMILLION) 8 0.5 EQUITY VALUE (SMILLION) O. COMPANY VALUE ($MILLION 0.5 COMPANY REVENUE ( SMILLION ) OMPANY REVENUE (SMILLION) COMPANY REVENUE (SMILLION) 2. 50% bankruptcy costs and no renegotiations. DEBT VALUE EQUITY VALUE COMPANY VALUE DEBT VALUE (SMILLION EQUITY VALUE (SMILLION) COMPANY VALUE ($MILLION 0.5 COMPANY REVENUE (SMILLION) COMPANY REVENUE (SMILLION) COMPANY REVENUE (SMILLION) 3. 50% bankruptcy costs with renegotiations (equal bargaining power) DEBT VALUE EQUITY VALUE COMPANY VALUE DEBT VALUE ($MILLION) EQUITY VALUE ($MILLION) COMPANY VALUE (SMILLION 6 0.5 COMPANY REVENUE (SMILLION) 1.5 COMPANY REVENUE (SMILLION 0.5 COMPANY REVENUE (SMILLION)Self Practice Practice 1. DEBT VALUE EQUITY VALUE COMPANY VALUE DEBT VALUE (SMILLION) 1.5 EQUITY VALUE (SMILLION) 30.5 COMPANY VALUE (SMILLION 1.5 COMPANY REVENUE (SMILLION ) COMPANY REVENUE (SMILLION) COMPANY REVENUE ( SMILLION ) Practice 2. DEBT VALUE EQUITY VALUE COMPANY VALUE DEBT VALUE (SMILLION ) EQUITY VALUE ($MILLION 1.5 COMPANY VALUE (SMILLION COMPANY REVENUE (SMILLION ) COMPANY REVENUE (SMILLION) COMPANY REVENUE ( SMILLION ) Practice 3. DEBT VALUE EQUITY VALUE COMPANY VALUE 51.5 DEBT VALUE (SMILLION ) EQUITY VALUE ($MILLION 0.5 COMPANY VALUE ($MILLION COMPANY REVENUE (SMILLION) COMPANY REVENUE (SMILLION) COMPANY REVENUE ( SMILLION )