Bowaites Manufacturing has a current cash and marketable securities balance of $50 million. The companys economist is
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a. Under these conditions, what is the probability that Bowaite’s will run out of cash during the recession?
b. Bowaite’s is considering a major capital expansion project. If the project is undertaken, it will be financed initially with debt totaling $200 million. This debt financing will require after-tax cash outflows for debt service during the 2-year recession of $60 million. If Bowaite’s is willing to accept a 10 percent chance of running out of cash, should the expansion (with debt financing) be undertaken?
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Contemporary Financial Management
ISBN: 9780324289114
10th Edition
Authors: James R Mcguigan, R Charles Moyer, William J Kretlow
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