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					$5,000,000	in year 0
Expected cash flows after turnaround					$1,750,000	in years 2-6
Sale of Equity (Exit)					$3,500,000	in year 6
Equity ownership					70%
Cost of capital					12%
Should they engage in the debt-for-equity swap? Explain why?

Answer rating: 100% (QA)

Calculate the present value of the expected cash flows and the exit proceeds using the cost of capit... View the full answer