Business, 01.12.2021 22:10, marcgtz511p3pln7

Suppose you have a company, which, starting next year, will either generate 200 every year forever, or 100 every year forever (with equal probability). Assume no systematic risk; rf is 10%. All uncertainty will be resolved at date 1. There are 1000 shares outstanding. All of the MM assumptions hold. Suppose now that there is a one-time $11 bankruptcy cost. That means that if the company fails to meet its debt service obligation of $150, it will have to pay a fee of $11. What is the total value of the company?

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Suppose you have a company, which, starting next year, will either generate 200 every year forever,...