Solution-Current value of the debt

Current value of the debt

Reference no: EM131082517

TL Company has expected earnings of $75 in one year if it does well and $25 if it does poorly. The firm has outstanding debt of $50 that is due in one year. However, given the financial distress costs, the debtholders will only receive $40 in one year if the firm does well and $15 if it does poorly. There is a 60 percent chance the firm will do well and a 40 percent chance that it will do poorly. What is the current value of the debt if the interest rate on bonds is 8 percent?

Reference no: EM131082517

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Current value of the debt

Reference no: EM131082517

Reference no: EM131082517

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