Suppose Xphone can raise the $150 million by issuing a bond with a face value of $150
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Question:
Suppose Xphone can raise the $150 million by issuing a bond with a face value of $150 million (because the lender naively believes the company will take the safe project). What is the expected profit (or loss) to the nave lenders? Note that the nave lender believes the company will take the project with higher NPV, and the profit (or loss) to the lenders equals to the expected payoff minus the amount of loan borrowed from the lenders.
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