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Chapter 15 Dugan Corporation's Capital Budgeting Input Area: Recession Normal Expansion Probability 0.30 $ 0.50 $ 0.20 $ Without expansion 6,900,000 $ 12,000,000 $ 16,000,000 $ With expansion 8,400,000 17,200,000 20,700,000 Face value of debt Cost of expansion $ $ 9,300,000 3,700,000 Output Area: 1) Expected value of firm Without expansion With expansion Expected NPV 2) Value of debt Recession Normal Expansion Without expansion 6,900,000 $ 9,300,000 $ 9,300,000 $ With expansion 8,400,000 9,300,000 9,300,000 $ Expected value of debt Without expansion With expansion 3) Value of equity Recession Normal Expansion Remember that the value of equity in any particular period will be equal to the firm minus the value of debt. $ $ 2,700,000 $ 6,700,000 $ 7,900,000 11,400,000 Expected value of equity Bondholder gain with expansion F30-E30 Stockholder gain with expansion Stockholder NPV