Doubts

Point d of Topic 8 (Limits to the Use of Debt)

Re: Point d of Topic 8 (Limits to the Use of Debt)

by Julio Crego -
Number of replies: 0
When we check whether the medium scenario is bankrupt, we use the maximum amount without going bankrupt. In this case, we have 2/3 probability of no bankruptcy; hence, the debt payment is paid with probability 2/3 and the financial distress costs with 1/3 probability. Once we look for bankruptcy in the worst scenario, there is no bankruptcy.