1. Zenefts is a start-up firm that provides free online HR Software to facilitate human resource management. Fortune magazine states that Zenefits is growing so fast that it has to onboard new employees in bulk: 150 at a time, once per month. Investors are concerned the CEO is becoming a celebrity.

   1. (a) Briefly discuss what strategies in terms of capital structure for the firm you, as the chair of the board of directors, would pursue under these circumstances?

(b) Assume it is the beginning of year 2017 and Zenefits is facing financial distress. The rm has a loan of 100m due at the end of the year, but its assets will be worth only 80m by then. Also assume the firm can pursue one project that requires negligible upfront investment and has a 50% chance of success. If the project succeeds, the firm gets 110m; if it fails the Arm gets 10m.

1. Can shareholders benefit from this project?

2. If the value of assets is lower than the value of debt by the end of the year, then the firm will default

   (that is, when the firm is not able to fulll its debt obligations). What is the expected value of the

   project from the shareholders' perspective?

3. If the value of assets is lower than the value of debt by the end of the year, then the firm will default

   (that is, when the firm is not able to fulll its debt obligations). What is the expected value of the project from the creditors' perspective?