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 these claims. However,there is a 15% chance that cash flows will fall short,in which case total earnings are expected to be $65. If the bonds sell in the market for $84,what is an estimate of the bankruptcy costs for Do-All-Right?
Assume a cost of debt of 10%.
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