ChiBoxer Limited has risky assets-in-place with values next year presented as follows: Assets-in-place Interest Rate Probability...

 

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ChiBoxer Limited has risky assets-in-place with values next year presented as follows: Assets-in-place Interest Rate Probability Low 1/3 $100 million High 2/3 $10 million All other relevant public information is as follows: ChiBoxer has a one-year safe project that requires investment outlay of $15 million today and will generate $22 million next year. ChiBoxer has $15M in cash. This money can be either paid out as a special dividend or invested in the safe project. ChiBoxer's capital structure consists of $35 million bank loan due next year. The discount rate for the project, the bank loan and equity is assumed to be 10%. ChiBoxer's CEO will always act in the best interest of the shareholders. (a) Determine the fair market value debt and equity today? (10 points) (b) Suppose you are the creditor of ChiBoxer responsible for the $35 million bank loan due next year. What financial product would you require Chiboxer to use? (10 points) And what would be the corresponding market value of the bank loan and equity today after using your product? (10 points) ChiBoxer Limited has risky assets-in-place with values next year presented as follows: Assets-in-place Interest Rate Probability Low 1/3 $100 million High 2/3 $10 million All other relevant public information is as follows: ChiBoxer has a one-year safe project that requires investment outlay of $15 million today and will generate $22 million next year. ChiBoxer has $15M in cash. This money can be either paid out as a special dividend or invested in the safe project. ChiBoxer's capital structure consists of $35 million bank loan due next year. The discount rate for the project, the bank loan and equity is assumed to be 10%. ChiBoxer's CEO will always act in the best interest of the shareholders. (a) Determine the fair market value debt and equity today? (10 points) (b) Suppose you are the creditor of ChiBoxer responsible for the $35 million bank loan due next year. What financial product would you require Chiboxer to use? (10 points) And what would be the corresponding market value of the bank loan and equity today after using your product? (10 points)