Sunshine Amusement Parks Corporation exists in a world where there are only two periods: t=0 when capital expenditures can be made, and t=1 when cash flows are realized in one of two states of the world. The two states of the world are sunny summer weather or rainy summer weather. The probability of a sunny summer is 65% and the probability of a rainy summer is 35%. Sunshines existing assets pay off $180M if the summer is sunny and $40M if the summer is rainy.

Sunshine is considering an investment in new rides that will pay off $60M in a sunny summer and $15M in a rainy summer. Sunshine executives are still calculating the CAPX required for the project, so that the NPV is still unknown. However, they do know the cost will not be more than $100M. All costs for the project will be paid for by issuing debt, whose face value will be denoted by F. All numers are in millions.

The risk-free rate is zero. Summer weather is uncorrelated with the stock market. There are no taxes, costs of financial distress, or asymmetric information between managers and investors.

(a) assume that Sunshine has pre-existing debt with face value of $100M outstanding, but that the new debt for the project will be pari passu to the pre-existing debt (i.e. new debt will be of same seniority as the pre-existing debt). What is the maximum initial cost at which shareholders will vote to undertake the project?

(b) assume that Sunshine has pre-existing debt with face value of $100M outstanding, but that the new debt for the project will be pari passu to the pre-existing debt (i.e. new debt will be of same seniority as the pre-existing debt). What is the minimum NPV at which shareholders will vote to undertake the project?

(c)Suppose that in order to issue pari passu debt, Sunshine needs the approval of the initial creditors. What is the maximum initial cost at which the initial creditors will allow a pari passu debt issue to finance the project?

(d)Suppose that in order to issue pari passu debt, Sunshine needs the approval of the initial creditors. What is the minimum NPV at which the initial creditors will allow a pari passu debt issue to finance the project?