Finance

McKenzie Corporation

The value of the debt of the firm is the value of the firm up to twenty-five million dollars. In perspective, if the value of the firm is less than the twenty-five million then the holders of the debt can claim the remaining firm value.

|Economic Growth |Probability |Without Expansion |Value of Debt(a) |Value to all Shareholders |

|Low |0.3 |$20,000,000 | 20,000,000 |$0 |

|Normal |0.5 |$34,000,000 | 25,000,000 |$9,000,000 |

|High |0.2 |$41,000,000 | 25,000,000 |$16,000,000 |

| | | | | |

|Expected Value | | $31,200,000 | $23,500,000 | $7,700,000 |

|Change in shareholder |

|value |

| |

|$11,000,000 |

|$12,000,000 |

|Economic Growth |Probability |With Expansion |Value of Debt(a) |Value to all Shareholders |

|Low |0.3 |$24,000,000 | 24,000,000 |$0 |

|Normal |0.5 |$45,000,000 | 25,000,000 |$20,000,000 |

|High |0.2 |$53,000,000 | 25,000,000 |$28,000,000 |

|Expected Value | | $40,300,000 |...