depa robability of a boom year is 65 percent and the probability of a rece hat the company will generate a total cash flow of $190 million in ecession. The company's required debt payment at the end of the alue of the company's outstanding debt is $80 million. The compar - What payoff do bondholders expect to receive in the event of a . What is the promised return on the company's debt? . What is the expected return on the company's debt?

depa robability of a boom year is 65 percent and the probability of a rece hat the company will generate a total cash flow of $190 million in ecession. The company's required debt payment at the end of the alue of the company's outstanding debt is $80 million. The compar - What payoff do bondholders expect to receive in the event of a . What is the promised return on the company's debt? . What is the expected return on the company's debt?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 20P

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Good Time Company is a regional chain department store. It will remain in business for one more year. The probability of a boom year is 70 percent and the probability of a recession is 30 percent. It is projected that the company will generate a total cash flow of $202 million in a boom year and $93 million in a recession. The company's required debt payment at the end of the year is $127 million. The market value of the company's outstanding debt is $100 million. The company pays no taxes. a. What payoff do bondholders expect to receive in the event of a recession? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.) b. What is the promised return on the company's debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) c. What is the expected return on the company's debt? (Do not round intermediate calculations and…
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