Problem: Good Time Company is the regional chain department store. It will remain in business for one more year. The possibility of a boom year is 56 percent and the possibility of a recession is 44 percent. It is projected that the company will create a total cash flow of $ 211 million in a boom year and $ 82 million in the recession. The company's needed debt payment at the end of the year is $ 122 million. The market value of company's outstanding debt is $ 92 million. The company pays no taxes.

Requirement 1: What payoff do bondholders expect to receive in event of recession?

Requirement 2: What is the promised return on company's debt?

Requirement 3: What is the expected return on company's debt?