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Business, 26.07.2020 14:01 uticabadgirl

However, the debt issues also raises the probability of bankruptcy. You company has a 30% chance of going bankrupt after 3 years. If it does go bankrupt, it will incur bankrupt costs of $200,000. Again, the discount rate is 10%. What is the expected cost of bankruptcy at the end of the third year? And what is the present value of this cost as of today? (Hint: if there is a 30%t chance of costing shareholders $200,000, what is the expected cost? And, it could only happen at the end of the third year.)

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However, the debt issues also raises the probability of bankruptcy. You company has a 30% chance of...
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