Fair distribution of cash to hewish and ryles

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Reference no: EM131862500

Ryles is the only stockholder of Ryles & Hewish, but Hewish has lent a certain sum of money to the business with the understanding that he will be paid $100,000 after 6 years. The current value of the business is $150,000 and its sigma is estimated to be about 0.4. The risk-free rate is 8%. If the company were to be liquidated today, what would be a fair distribution of cash to Hewish and Ryles? (Hint: Ryles’ equity ownership is essentially a call option on the business. His fair distribution should be the value of this option.)

Problem must be solved in excel

Reference no: EM131862500

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