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Problem solving 2 Suppose investors foresee $2 millions of legal costs if the firm defaults on its bonds. How does this affect the value of

Problem solving 2

Suppose investors foresee $2 millions of legal costs if the firm defaults on its bonds. How does this affect the value of the firms bond if bankruptcy occurs? How does the possibility of default affect the interest rate demanded by bondholders today? How does this possibility affect todays value or the firms common stock?

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