Debt Overhang: II
100
2700
0
1000
Stockholders
claim
4000
4000
2400
4000
Bondholders
claim
4100
6700
2400
5000
Firm
Cashflows
Recession
Boom
Recession
Boom
Firm W/ Proj
Firm W/o Proj
Stockholders have on av. $500 without the project, and
$400 with the project [(2700+100)/2 1000]. The new
project will not be undertaken.