Please show all work.

BoatShare Inc. has just received approval to operate in coastal cities across Connecticut. In order to begin operations, it will need to purchase 100 new boats at $45,000 each (i.e., total cost of $4,500,000). To finance this purchase, it will borrow all $4,500,000 for one year from the bank. There is a 90 percent chance that BoatShare will generate sufficient cash flow to repay the loan in full with interest at the end of the year; otherwise, BoatShare will go bankrupt. In the event of bankruptcy, the fleet of used boats can be sold for $1,800,000; however, the legal and administrative costs to the bank of seizing and selling them is $450,000.

Before calculating anything, how is the interest rate charged on the loan that you calculated in Question 2 affected by the potential bankruptcy costs? That is, is it higher, lower, or the same as it would be absent these costs?