22 Jul WHAT PAYOFF DO BONDHOLDERS EXPECT TO RECEIVE IN THE EVENT OF A RECESSION?
Good Time Company is a regional chain department store. It will remain in business for one more Show more 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 companys required debt payment at the end of the year is $127 million. The market value of the companys 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. Enter your answer in dollars not millions of dollars i.e. 1234567.) Payoff $ b. What is the promised return on the companys debt? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g. 32.16)) Promised return % c. What is the expected return on the companys debt? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g. 32.16)) Expected return % Show less
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