If a 100 bond collateralized by this project promises an


A new project has the following success probabilities

  Failure 
 Success  Buyout

Pith

10%

85%

5%

Payoff (in millions)

550

5200

5900


Assume risk neutrality. If a $100 bond collateralized by this project promises an interest rate of 8%, then what is the prevailing cost of capital, and what do shareholders receive if the buyout materializes.

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Financial Management: If a 100 bond collateralized by this project promises an
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