Question

The Wiz Co. owes $60 to its bondholders. The company expects to have a cash flow of $136 if the economy continues as is but that cash flow will deceases to $54 if the economy enters a recession. Should the company face the real possibility of bankruptcy, it will incur legal and other fees of $30. What amount will bondholders be paid in the case of a recession?

Answer 1

Answer:

$24

Explanation:

Calculation for the amount that the bondholders

will paid in the case of a recession

Using this formula

Amount to be paid by Bondholder=Decreased in cash flow- Legal and other fees

Let plug in the formula

Amount to be paid by Bondholder = $54 − $30

Amount to be paid by Bondholder= $24

Therefore the amount that the bondholders will paid in the case of a recession is $24