Essay
The Do-All-Right Marketing Research firm has promised payments to its bondholders that total £100.The company believes that there is a 85% chance that the cash flow will be sufficient to meet theseclaims.However, there is a 15% chance that cash flows will fall short, in which case total earnings areexpected to be £65.If the bonds sell in the market for £84, what is an estimate of the bankruptcycosts for Do-All-Right? Assume a cost of debt of 10%.
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