Given:

If a firm has $100 million debt outstanding with a coupon rate of 6%. A coupon payment of $6 million is currently due and the bond has a year of maturity remaining after the current coupon is paid. The firm has $6 million in cash and hard assets that could be liquidated for $90 million. The assets next period are equally likely to be worth $120 million or $50 million. Assume for simplicity that the risk free rate of interest is zero and all investors are risk neutral.

In order to solve this problem, I would need to whether or not management would be working in the best interests of shareholders to use the available cash to pay a dividend and default or use the available cash to pay the current coupon?

Also which outcome (use the cash to pay a dividend and default or use the cash to make the debt current) would the bondholder’s prefer?

I am not sure which calculations/formula I need to use or if this primarily conceptual.

Thanks!