The following are the FCF for Dot.com in year 1. These cash flows depend on the state of the economy (i.e. poor, normal, good, and super good). The probability of these economic states is given below.

Dot.com. closes down at the end of period 1 and has no assets other than the FCF generated in the period. The company has the following stakeholders: senior debtholders with a claim of $4,000, junior debt-holders with a claim of $2,000 and shareholders. Assuming a 0% discount rate for all financial assets, calculate the current value of Dot.coms junior debt.

\begin{tabular}{|l|c|c|} \hline \multicolumn{1}{|c|}{ State } & Probability & FCF (\$) \\ \hline Bad & 1/4 & 1,000 \\ \hline Normal & 1/2 & 3,000 \\ \hline Good & 1/8 & 6,000 \\ \hline Super Good & 1/8 & 7,000 \\ \hline \end{tabular} \begin{tabular}{|l|c|c|} \hline \multicolumn{1}{|c|}{ State } & Probability & FCF (\$) \\ \hline Bad & 1/4 & 1,000 \\ \hline Normal & 1/2 & 3,000 \\ \hline Good & 1/8 & 6,000 \\ \hline Super Good & 1/8 & 7,000 \\ \hline \end{tabular}