Adept Inc.is currently valued at $145,700 in a boom and $75,200 in a recession.The chance of either economic state occurring is 50 percent.The firm owes $85,000 to its debt holders.What is the value of the firm to the shareholders in a recession?
A)$22.50
B)$55.00
C)$27.50
D)−$10.00
E)$0

Question

Quizplus · Accepted Answer

In a recession, the firm is valued at $75,200. Since the firm owes $85,000 to its debt holders, and the value of the firm in a recession is less than what it owes, the shareholders would receive nothing ($0) because the debt holders have priority in claims.

Adept IncIs Currently Valued at $145,700 in a Boom and $75,200