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Question 7 (Bankruptcy Costs) AMCO Company's cash flows are either $10m or $20m per year forever. The cash-flow is $10m if a hurricane hits Florida next year and $20m otherwise. Assume thatthe probability of hurricane is 5% every year. The risk-free interest rate is 10%. AMCO is planning to issue debt and the annual coupon payment promised on their debt is $15m. If the AMCO Company enters into bankruptcy, it suffers a reduction of 10% out of its cash flows in the bankruptcy state. Think ofthis cost as a lawyer's fee or administrative costs to be paid in bankruptcy. Assuming debt holders pay a fair price for the debt, what are the proceeds from the debt issue now? What is the market value of the AMCO Company? What is the total wealth of shareholders