1. Wildcat Drilling (WD) is an oil and gas exploration company that is currently operating two active oil fields (each file has a market value of $200 million dollars), but does not have a better technology to increase the market value in the short term. Unfortunately, Wildcat Drilling has $500 million in debt coming due at the end of this year. A large oil company has offered Wildcat drilling a highly speculative, but potentially very valuable, oil drillingtechnology that can be used on Wildcat Drillings active fields. But in order to get that technology, WD has to give one oil field to that large oil company for free. If WD accepts the trade, there is a 10% chance that WDs left oil field would be worth $1.2 billion, a 15% that WDs kept oil field would be worth $600 million, and a 75% chance that Wildcat will be worth the original market value (i.e., $200 million) by the end of this year.

   1. (a) If accepting this deal, what is the expected payoff (not profit) to Wildcat Drilling by the end of this year?

   2. (b) If accepting this deal, what is the expected payoff to debt holders by the end of this year?

   3. (c) If accepting this deal, what is the expected payoff to equity holders by the end of this year?

   4. (d) Will Wildcat Drilling accept the deal? Explain your reasoning.