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