A new project has the following success probabilities
|
Failure
|
Success |
Buyout |
Pith
|
10%
|
85%
|
5%
|
Payoff (in millions)
|
550
|
5200
|
5900
|
Assume risk neutrality. If a $100 bond collateralized by this project promises an interest rate of 8%, then what is the prevailing cost of capital, and what do shareholders receive if the buyout materializes.