Hi all,
I'm reading page 3 of chapter 7, there are some concepts I don't quite understand and I hope someone could please help me out.
As shown in the simple example on page 3, I don't get why:
1)if the debt was due for repayment immediately it would be expected to have market value of 500m?
2)the equity has value greater than zero because the debt is not due for repayment immediately, and by the maturity date the value of the company's assets may be greater than 600m face value of the debt.
If I understand correctly, for 1) it's expected to have market value of 500m because if it doesn't the company is lost to the debtholder, for 2) for the same reason?
Last edited by a moderator: Feb 4, 2018