Q4 A firm is expected to generate a single risky cash flow in one year. The CF will be either $90 (with probability 0.5) or $30 (with probability 0.5). All investors are risk neutral. The interest rate is 0. If the firm decides to borrow $50 and pay the amount as a dividend to shareholders, how much will be the promised return to creditors? A. 60% B. 17.1% C. 40% D. 26.7% E. 50%

Q4 A firm is expected to generate a single risky cash flow in one year. The CF will be either $90 (with probability 0.5) or $30 (with probability 0.5). All investors are risk neutral. The interest rate is 0. If the firm decides to borrow $50 and pay the amount as a dividend to shareholders, how much will be the promised return to creditors? A. 60% B. 17.1% C. 40% D. 26.7% E. 50%

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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