Good Time Company is a regional chain department store expected to operate for one more year. There is a 70% chance of a boom year with a cash flow of $186 million, and a 30% chance of a recession with a cash flow of $77 million. The required debt payment by the end of the year is $111 million, and the company's outstanding debt has a market value of $84 million. The company does not pay any taxes.**Questions:****a.** What payoff do bondholders expect in the event of a recession?- *Note:* Do not round intermediate calculations. Enter your answer in dollars (not millions), rounded to the nearest whole number (e.g., 1,234,567).**b.** What is the promised return on the company's debt?- *Note:* Do not round intermediate calculations. Enter your answer as a percent rounded to two decimal places (e.g., 32.16).**c.** What is the expected return on the company's debt?- *Note:* Do not round intermediate calculations. Enter your answer as a percent rounded to two decimal places (e.g., 32.16).**Table (for responses):**| | ||---------|----------|| a. Payoff | || b. Promised return | % || c. Expected return | % |

Good Time Company is a regional chain department store. It will remain in business for one more year. The probability of a boom year is 70 percent and the probability of a recession is 30 percent. It is projected that the company will generate a total cash flow of $186 million in a boom year and $77 million in a recession. The company's required debt payment at the end of the year is $111 million. The market value of the company's outstanding debt is $84 million. The company pays no taxes. a. What payoff do bondholders expect to receive in the event of a recession? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.) b. What is the promised return on the company's debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) c. What is the expected return on the company's debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. Payoff b. Promised return c. Expected return % %

Good Time Company is a regional chain department store. It will remain in business for one more year. The probability of a boom year is 70 percent and the probability of a recession is 30 percent. It is projected that the company will generate a total cash flow of $186 million in a boom year and $77 million in a recession. The company's required debt payment at the end of the year is $111 million. The market value of the company's outstanding debt is $84 million. The company pays no taxes. a. What payoff do bondholders expect to receive in the event of a recession? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.) b. What is the promised return on the company's debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) c. What is the expected return on the company's debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. Payoff b. Promised return c. Expected return % %

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter21: Supply Chains And Working Capital Management

Section: Chapter Questions

Problem 17P: The Raattama Corporation had sales of $3.5 million last year, and it earned a 5% return (after...

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