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What is the net expected payoff of the junior bank

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Question - AAA Ltd. is in financial distress and has two loans outstanding: one loan borrowed from CBA Bank with an amount of $800000.The other loan with the amount of $400000 is from a junior bank that has a lower priority to get paid than other debt holders. If AAA Ltd. wants to liquidate and default on its loans the liquidation value is $50000. If the company continues its business AAA Ltd.'s management's special skills will lead to a payoff of $1080000 with a probability of 0.75 otherwise zero. If AAA Ltd continues the business, what is the net expected payoff of the junior bank?

Reference no: EM133180760

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