| Debt
Overhang: III |
|
|
|
|
|
|
|
|
|
|
|
| • | Bondholders’
return = -8.57%; exp. equity |
|||||||||
| payoff
= $500; total return = 7.14%. Bond |
||||||||||
| buyers
will have to demand higher yields to |
||||||||||
| account
for the possibility that stockholders will |
||||||||||
| turn
down desirable projects in the future. This |
||||||||||
| might
make initial project unprofitable as well; |
||||||||||
| need
31.43% stated return on bonds and only |
||||||||||
| $200
for stockholders to obtain even 0% return |
||||||||||
| for
bondholders. |
||||||||||