Mckenzie Corporation's Capital BudgetingGiven value of Mckenzie in different scenarios,

Economic Growth

Probability

Without Expansion

With Expansion

Low

$20,000,000

$22,000,000

Normal

$25,000,000

$32,000,000

$43,000,000

$52,000,000

Expected value of the company within one year with Expansion is as follows: =

Formula of E (value of company)

= "P (Low)*V (Low) + P (Normal)*V (Normal) + P (High)*V (High)"

=0.3*22,000,000 +0.5*32,000,000 +0.2*52,000,000

= 6,600,000 + 16,000,000 + 10,400,000

= $33,000,000

= $33 Million.

Expected value of the company within one year without Expansion is as follows:

= P (Low)*V (Low) + P (Normal)*V (Normal) + P (High)*V (High)

= .30*20,000,000 + .50*25,000,000 + .20*43,000,000

=6,000,000 + 12,500,000 + 8,600,000

= $27,100,000

= $27.1 Million.

Answer 2)

Company's debt is $25 million.

Thus, the expected value of the company debt without expansion

= .30*25,000,000 + .50*25,000,000 + .20*25,000,000

= $7,500,000 + $12,500,000 + $5,000,000

= $25 million

Thus, the expected value of...

Thus, Expected value for stockholder = $0.2 million
Expected value for bondholders = $0.

Answer 4)

Case 1: Company does not expand:

If the company does not expand, there will be no change in the status of the bondholders since the debt of $25 million remains the same. Thus, there will be no change in the value of the bonds.

Case 2: Company expands:

If the company expands, the expected value of equity holders will rise. Thus, the value of the equity will also increase, which will decrease the debt-equity ratio. Thus, the…