Question

Your company has a one-year residual life. In one year the value of assets will be equal to 50,000,000 with probability 0.5 and 20,000,000 with probability 0.5. At the moment the company is unlevered. Assume you borrow issuing a bond with face value 30,000,000 at the beginning of the last year of the company's life. The return on unlevered equity is 6.75% and the costs connected to bankruptcy are equal to 4,581,147.54. If the levered value of the firm is 30,573,770.49, what is the expected return of debt? (assume no taxation)

Answer 1

ques isn't clear ....mate