The Window Store will have a value of $139,000 if the economy does well this coming year and a value of $121,000 if the economy does poorly.The probability of a good economy is 68 percent.The firm owes its bondholders $63,000.The firm will only operate for one more year.What is the value of this firm to its shareholders?
A)$68,500
B)$70,240
C)$70,450
D)$73,550
E)$74,660

Question

Quizplus · Accepted Answer

Shareholder value = 0.68($139,000 - $63,000)+ (1 - 0.68)($121,000 - $63,000)= $70,240

The Window Store Will Have a Value of $139,000 If