The TrunkLine Company will earn £60 in one year if it does well.The debtholders are promised payments of £35 in one year if the ﬁrm does well.If the ﬁrm does poorly, expected earnings in one
Year will be £30 and the repayment will be £20 because of the dead weight cost of bankruptcy.The
Probability of the ﬁrm performing poorly or well is 50%.If bondholders are fully aware of these costs
What will they pay for the debt? The interest rate on the bonds is 10%.
A)£25.00
B)£27.50
C)£29.55
D)£32.50
E)£35.00

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The Answer of The TrunkLine Company will earn £60 in one year if it does well.The debtholders are promised payments of £35 in one year if the ﬁrm does well.If the ﬁrm does poorly, expected earnings in one
Year will be £30 and the repayment will be £20 because of the dead weight cost of bankruptcy.The
Probability of the ﬁrm performing poorly or well is 50%.If bondholders are fully aware of these costs
What will they pay for the debt? The interest rate on the bonds is 10%.
A)£25.00
B)£27.50
C)£29.55
D)£32.50
E)£35.00

The TrunkLine Company Will Earn £60 in One Year If