Problem: The Griffey-Lang Food Company faces a difficult problem. In management's effort to grow the business, they accrued a debt of $150 million while the value of the company is only $125 million. Management must come up with a plan to alleviate the situation in one year or face certain bankruptcy. Also upcoming are labor relations meetings with the union to discuss employee benefits and pension funds. Griffey-Lang at this time has three choices they can pursue:
1) Launch a new, relatively untested product that if successful (probability of .12) will allow G-L to increase the value of the company to $200 million,
2) Sell off two food production plants in an effort to reduce some of the debt and the value of the company thus making it even (.45 probability of success), or
3) Do nothing (probability of failure = 1.0).
a. As a creditor, what would you like Griffey-Lang to do, and why?
b. As an investor?
c. As an employee?