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You are consulting with a firm in financial distress. Probability Cash Flow GOOD 0.6 $ 200 million BAD 0.4 $75 million Market Value of Debt

You are consulting with a firm in financial distress.

Probability Cash Flow

GOOD 0.6 $ 200 million

BAD 0.4 $75 million

Market Value of Debt is $ 80 million.Firm does not pay taxes.

a.In BAD times; what will the bondholder receive?

b.Compute the expected return to the bondholder.

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