Should ellen take the cash or the note

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Reference no: EM13262691

Sisters Madonna and Ellen jointly own Pico Peak Corporation. Madonna's share is 50% of the business. The value of the corporation is $150,000 and its risk in terms of sigma is 0.6. Madonna would like to buy Ellen out and offers her cash, equivalent to Ellen's share, or a note for $80,000 payable by Pico Peak Corporation after 2 years. The riskless rate is 3.4%. Find the value of the cash offer, and the value of the note. Should Ellen take the cash or the note?

Reference no: EM13262691

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