Use the Information for the Question(s)below

question 82

Multiple Choice

Use the information for the question(s) below.
JR Industries has a $20 million loan due at the end of the year and under its current business strategy its assets will have a market value of only $15 million when the loan comes due.JR is considering a new much riskier business strategy.While this new riskier strategy can be implemented using JR's existing assets without any additional investment,the new strategy has only a 40% probability of succeeding.If the new strategy is a success,the market value of JR's assets will be $30 million,but if the strategy fails the assets will be worth only $5 million.
-What is the expected payoff to debt holders under JR's new riskier business strategy?

• A)$20 million
• B)$4 million
• C)$15 million
• D)$11 million

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Definitions:

Tendencies

Inclinations or predispositions toward certain behaviors, thoughts, or actions that are characteristic of an individual or group.

Assimilated

The process by which a person or group adopts the cultural traits or social patterns of another group, often losing their original identity.

Economically Successful

A state of achieving significant financial prosperity or wealth, often linked to effective management of resources and investments.

Educationally Successful

Achieving significant accomplishments or obtaining high levels of performance in educational settings, often measured by grades, graduation, or other academic achievements.