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Incredible Inc.currently owes its creditors $300.The manager, Mr.Jack Smith can manage it for a period at a personal cost of $110.It has an asset which will generate $450 with probability 0.7 or $200 with probability 0.3 under Mr.Smith's stewardship.Under any other management, the asset will have a sure liquidation value of $250.Everybody is risk neutral and the riskless rate is zero.
-What

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Incredible Inc.currently owes its creditors $300.The manager, Mr.Jack Smith can manage it for a period at a personal cost of $110.It has an asset which will generate $450 with probability 0.7 or $200 with probability 0.3 under Mr.Smith's stewardship.Under any other management, the asset will have a sure liquidation value of $250.Everybody is risk neutral and the riskless rate is zero.
-What

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Under Mr.Smith's management, the expected value of the asset is $450*0.7+$200*0.3=$375. Since the personal cost of managing is $110, the net value generated is $375-$110=$265. 
If the firm is liquidated, the asset will have a value of $250, which is less than the net value generated under Mr.Smith's management. Therefore, it is in the best interest of the creditors to continue with Mr.Smith's management. 
The creditors' payoff in this case will be the amount owed to them, which is $300. However, since the net value generated is greater than the amount owed, the creditors will have a higher chance of receiving their full amount if the firm continues to operate under Mr.Smith's management. Therefore, the best choice is to continue with Mr.Smith's management.

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