Final Exam (3 Hour 45 Min.) - Instructor: Prof. Hojong Shin - SUMMER 2023 FIN 600 - Total: 20 points "Attention: Please show your work. You will not have any credit without proper calculation QUESTION 1 PARTA. [3 points] Suppose a company borrows $1 million debt to invest in a project that generates uncertain cash flow (revenue) of 0-$2 million. The debt has to be repaid (interest rate is zero) when the project's cash flow is realized. Clearly mark where the lines start, end and change direction 1-1. Assume 80% of the cash flow (revenue) is lost upon bankruptcy (i.e., when debtholders control the firm). Also, assume that renegotiations are allowed and the manager may be allowed to stay if debtholders find it better than firing. Upon renegotiation debt and equity holders have 2:3 bargaining power. Drew value of debt, equity, and the company. EQUITY VALUE COMPANY VALUE 1 1-2. For Question 2-1, at what company cash flow does strategic default start to occur? 1-3. Strategic debt service is an example of (_ I, where each party to a contract worries about being forced to accept disadvantageous terms later (@.g. reduction of debt repayment through renegotiation), after it has sunk an investment (e.[ lending money). Fill in the blank