"A firm is expected to generate a single risky cash flow in one year. The CF will be either $90 (with probability 0.5) or $30 (with probability 0.5). All investors are risk neutral. The interest rate is 0. If the firm decides to borrow $50 and pay the amount as a dividend to shareholders, how much will be the promised return to creditors? Assume that, if bankruptcy happens, the firm will have to pay $5 to lawyers."

A. 50.0%

B. 21.4%

C. 33.3%

D. 75.0%

E. 66.0%

Answer rating: 100% (QA)

Solution The Answer is Option A which is 50 Reason Because ... View the full answer