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Dusty Donuts has zero coupon debt with a face value of $10 million due in 3 years, and no other debt ...

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Dusty Donuts has zero coupon debt with a face value of $10 million due in 3 years, and no other debt ...

Dusty Donuts has zero coupon debt with a face value of $10 million due in 3 years, and no other debt outstanding. The risk-free rate is 4%, but due to default risk the yield to maturity on the debt is 10%. Dusty's believes that in the event of default, 10% of the losses are attributable to bankruptcy and distress costs. Estimate the present value of the distress costs.
A) $138 million
B) $138 thousand
C) $1.38 million
D) $1.38 thousand

Textbook

Corporate Finance: The Core

Edition: 4^th

Authors: Berk, DeMarzo

Read 216 times

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EgorGruzdev

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More solutions for this book are available here

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johnpaech Author

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Really appreciate the help

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adarrigo

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thank you

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