) One year from now, how much value creation is expected from the expansion? How much value is expected for stockholders? Bondholders? Answer: The value of the company's equity with low economic growth is zero both with and without expansion since the company value will be less than the face value of the debt. This aligns with capital structure theory: equity holders benefit more when firm value increases, especially when debt repayment is capped (Brealey, Myers, & Allen, 2014). The value of equity with normal growth or high growth will be calculated as the value of the company minus the $25,000,000 face value of debt. So, The expected value of the equity without expansion is: VE = 0.30($0) + 0.50($1,000,000) + 0.20($19,000,000) VE = $0 + $500,000 + $3,800,000 VE = $4,300,000 And the expected value of equity with expansion is: VE = 0.30($0) + 0.50($8,000,000) + 0.20($28,000,000) VE = $0 + $4,000,000 + $5,600,000 VE = $9,600,000 The value expected for bondholders from the expansion is the difference in the expected values of debt calculated above. So, with expansion, the company's bondholders gain: With expansion, the expected value for company's bondholders is: Bondholder gain/loss = Expected Value with expansion - Expected value without expansion Bondholder gain = $28,400,000 - $27,800,000 Bondholder gain = $600,000