Murphy's Brewhouse was a rapidly expanding chain of home-brew bars. The beer was not very good, but hopes were high when the company went public three years ago, because of founder/owner Kevin Murphy's promotional skills.

At the time the company went public, Murphy's also issued $50 million of 20-year maturity debentures at a coupon rate of 9 percent. These debentures were sold at par ($1,000 per bond). Shortly after this debenture issue, Murphy's received some very negative reviews, both in the gourmet beer magazines and on Wall Street. The company is currently struggling. Its stock has plummeted from $40 per share three years ago to less than $5. Earnings remain positive but disappointing at $0.03 per share, and the company is barely breaking even on a cash flow basis.

Murphy's debentures are currently selling at 40 cents on the dollar. The debentures are callable two years from now at $1,090. If you require a 20 percent rate of return on investments of this perceived risk level, should you buy these debentures?