Bart's Mart will have a value of $41,000 if the economy does well this next year and a value of $32,000 if the economy does poorly.The probability of a good economy is 65 percent.The firm owes its bondholders $12,000.What is the market value of the firm if it only operates for one more year?
A)$24,500
B)$14,650
C)$37,850
D)$36,500
E)$25,850

Question

Quizplus · Accepted Answer

Expected firm value = .65 × $41,000 + .35 × $32,000 = $37,850

Bart's Mart Will Have a Value of $41,000 If the Economy