Question: A bank is considering a debt-for-equity swap to slavage a $5 million loan that is in default. They expect to recover $2.7 million after liquidation

A bank is considering a debt-for-equity swap to slavage a $5 million loan that is in default.
They expect to recover $2.7 million after liquidation ane legal fees.
A turnaround expert has recommended the following cassh flow analysis if the bank chooses the debt-for-equirt swap.
Initial Investment$5,000,000in year 0
Expected cash flows after turnaround$1,750,000in years 2-6
Sale of Equity (Exit)$3,500,000in year 6
Equity ownership70%
Cost of capital12%
Should they engage in the debt-for-equity swap? Explain why?

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