Analysts think both states are equally likely

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Question: Consider the company Typo Inc., a conglomerate that operates in two sorts of activities: financial services and pharmaceutical products. Because of unforeseen liquidity problems, Typo needs to urgently raise $15bn of cash in the stock market (for instance, failure to do so would result in bankruptcy). The exact value of Typo and of its two divisions is uncertain. Analysts reckon that there are only two possible "states": in the first one, Typo's financial activities are worth $50bn and the pharmaceutical portfolio $10bn, totalling $60bn. In the second state, the financial services are worth only $10bn and the pharmaceutical activities $30bn for a total value of $40bn. These values obtain only if Typo manages to raise $15bn and are inclusive of those. Analysts think both states are equally likely. Only insiders (managers) know the exact value of the assets.

Reference no: EM133609792

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