Tài liệu bài tập thưc hành môn Tài chính doanh nghiệp_ Chapter 16 (V1) | Chapter 16 Capital Structure Limits to the Use of Debt a. The value of a firm s equity is the discounted expected cash flow to the firm s stockholders. If there is a boom Good Time will generate cash flow of 250 million. Since Good Time owes its bondholders 150 million the firm s stockholders will receive 100 million 250 million - 150 million if there is a boom. If there is a recession Good Time will generate a cash flow of 100 million. Since the bondholder s have the right to the first 150 million that the firm generates Good Time stockholders will receive 0 if there is a recession. The probability of a boom is 60 . The probability of a recession is 40 . The appropriate discount rate is 12 . The value of Good Time s equity is 100 million 0 million The value of Good Time s equity is million. b. Promised Return Face Value of Debt Market Value of Debt - 1 Since the debt holders have been promised 150 million at the end of the year the face value of Good Time s debt is 150 million. The market value of Good Time s debt is million. The promised return on Good Time s debt is Promised Return Face Value of Bond Market Value of Bond - 1 150 million million - 1 The promised return on Good Time s debt is . c. The value of a firm is the sum of the market value of the firm s debt and equity. The value of Good Time s debt is million. As shown in part a the value of Good Time s equity is million. The value of Good Time is Vl B S million million million The value of Good Time Company is million. d. The market value of a firm s debt is the discounted expected cash flow to the firm s debt holders. If there is a boom Good Time will generate cash flow of 250 million. Since Good Time owes its debt holders 150 million the firm s bondholders will receive 150 million if there is a boom. While the firm s debt holders are owed 150 million Good Time will only generate 100 million of cash flow if
