Lets assume that we have project L, which has a 40% chance of turning out good. The
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Lets assume that we have project L, which has a 40% chance of turning out good. The company Raises $7,000, 50% from bondholders demanding a 6% interest rate and 50% from stockholders, which becomes $9,500 at the end of the project in the good situation or $4,500 in the bad. Excess proceeds from the project are invested back into the company or paid out to shareholders in dividends. Complete the table above given this information. Complete the table so that it could calculate the expected value and return no matter what inputs were given (hint: you need to use conditional statements or "if" functions).
Money Invested Today | Market Conditions One Year From Now | Expected Value | Expected Return | ||||||
GOOD | BAD | ||||||||
Cash flow to firm | |||||||||
Bondholders' | |||||||||
Stockholders' | |||||||||
Project cost | |||||||||
Bondholder | |||||||||
Shareholder | |||||||||
Bond Interest Rate | |||||||||
Good Probability | |||||||||
Bad Probability |
Related Book For
Fundamentals of Cost Accounting
ISBN: 978-0077398194
3rd Edition
Authors: William Lanen, Shannon Anderson, Michael Maher
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