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What is the market value of the firm equity and debt

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Reference no: EM132975033

Question - FT has a zero coupon bond issue outstanding with a face value of $55,000 that matures in two years. The current market value of the firm's assets is $67,400. The standard deviation of the return on the firm's assets is 40 percent per year, and the annual risk-free rate is 4 percent per year, compounded continuously. Based on the Black-Scholes model-

a. What is the market value of the firm's equity and debt?

b. What is the firm's continuously compounded cost of debt?

Reference no: EM132975033

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