Testir Corp. has outstanding 'zero coupon' debt of $600 million, so $600 million is due at the end of year 1. Testir beg

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Testir Corp Has Outstanding Zero Coupon Debt Of 600 Million So 600 Million Is Due At The End Of Year 1 Testir Beg 1 (44.51 KiB) Viewed 79 times

Testir Corp. has outstanding 'zero coupon' debt of $600 million, so $600 million is due at the end of year 1. Testir begins a risky corporate strategy. Management estimates with a 60% probability, that the company's total will be worth $800 million at the end of year 1. A 40% probability is that the company will be worth $500 million. If bankruptcy occurs, the distress costs will be 15% of the total asset value. Testir's cost of capital is 8%. - What is the present value of the company's $600 million in debt? - What is the present value of [the equity? - Use a table to answer the question.