Houston Homes has outstanding debt of $78 that is due in one year. Given the financial distress costs, debtholders will receive only $62 if the firm does well and $24 if it does poorly. The probability that the firm will do well is 75 percent and the probability that it will do poorly is 25 percent. Assuming a discount rate of 9.6 percent, what is the current value of the debt?

Answer rating: 100% (QA)

Expected Cash Flow Probability of Doing Well Cash Flow if Fi... View the full answer