The Odanak corporation (OC) has filed for bankruptcy. All of OCs assets would fetch $43 million on the open market today if put up for sale. The other alternative is to reorganize the business. If this occurs, the company would generate $3.97 million cash flows in perpetuity. Since there are no competitors making products similar to OC, there is no company that can offer a comparable discount rate. Analysts estimate that the discount rate can be between 10% and 25%.

a. If the companys discount rate is 10%, should the company be liquidated or reorganized?

b. Is the answer the same for the 20% discount rate?

c. What is the break-even discount rate at which they would be indifferent between reorganization and liquidation?