Ralston Enterprises has assets that will have a market value in one year as follows:

That is, there is a 1% chance the assets will be worth $70 million, a 6% chance the assets will be worth $80 million, and so on. Suppose the CEO is contemplating a decision that will benefit her personally but will reduce the value of the firm€™s assets by $10 million. The CEO is likely to proceed with this decision unless it substantially increases the firm€™s risk of bankruptcy.
a. If Ralston has debt due of $75 million in one year, the CEO€™s decision will increase the probability of bankruptcy by what percentage?
b. What level of debt provides the CEO with the biggest incentive not to proceed with thedecision?

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Probability Value (in million) 1% 6% 24% 38% 24% 690 196 70 80 90 100 110 120 130