Ralston Enterprises has assets that will have a market value in one year as shown here:. That is, there is a( n)1% chance the assets will be worth $75 million, a(n) 6% chance the assets will be worth $85 million, and so on. Suppose the CEO is contemplating a decision that will benefit her personally but will reduce the value of the firm's assets by $10 million. The CEO is likely to proceed with this decision unless it substantially increases the firm's risk of bankruptcy. a. If Ralston has debt due of $80 million in one year, the CEO's decision will increase the probability of bankruptcy by what percentage? b. What level of debt provides the CEO with the biggest incentive not to proceed with the decision? a. If Ralston has debt due of $80 million in one year, the CEO's decision will increase the probability of bankruptcy by what percentage? If Ralston has debt due of $80 million in one year, the CEO's decision will increase the probability of bankruptcy by %. (Round to the nearest integer.) Data table (Click on the following icon in order to copy its contents into a spreadsheet.) Your firm is considering issuing one-year debt, and has come up with the following estimates of the value of the interest tax shield and the probability of distress for different levels of debt: . Suppose the firm has a beta of zero, so that the appropriate discount rate for financial distress costs is the risk-free rate of 5%. Which level of debt above is optimal if, in the event of distress, the firm will have distress costs equal to a. \$2 million? b. $7 million? c. $25 million? Data table (Click on the following icon in order to copy its contents into a spreadsheet.) Ralston Enterprises has assets that will have a market value in one year as shown here:. That is, there is a( n)1% chance the assets will be worth $75 million, a(n) 6% chance the assets will be worth $85 million, and so on. Suppose the CEO is contemplating a decision that will benefit her personally but will reduce the value of the firm's assets by $10 million. The CEO is likely to proceed with this decision unless it substantially increases the firm's risk of bankruptcy. a. If Ralston has debt due of $80 million in one year, the CEO's decision will increase the probability of bankruptcy by what percentage? b. What level of debt provides the CEO with the biggest incentive not to proceed with the decision? a. If Ralston has debt due of $80 million in one year, the CEO's decision will increase the probability of bankruptcy by what percentage? If Ralston has debt due of $80 million in one year, the CEO's decision will increase the probability of bankruptcy by %. (Round to the nearest integer.) Data table (Click on the following icon in order to copy its contents into a spreadsheet.) Your firm is considering issuing one-year debt, and has come up with the following estimates of the value of the interest tax shield and the probability of distress for different levels of debt: . Suppose the firm has a beta of zero, so that the appropriate discount rate for financial distress costs is the risk-free rate of 5%. Which level of debt above is optimal if, in the event of distress, the firm will have distress costs equal to a. \$2 million? b. $7 million? c. $25 million? Data table (Click on the following icon in order to copy its contents into a spreadsheet.)
