What is the market value of the firms equity and debt

Assignment Help Financial Management
Reference no: EM131067538

1. Equity as an Option   Sunburn Sunscreen has a zero coupon bond issue outstanding with a $20,000 face value that matures in one year. The current market value of the firm's assets is $23,200. The standard deviation of the return on the firm's assets is 27 percent per year, and the annual risk-free rate is 6 percent per year, compounded continuously. Based on the Black–Scholes model, what is the market value of the firm's equity and debt?

2. Equity as an Option   Frostbite Thermalwear has a zero coupon bond issue outstanding with a face value of $45,000 that matures in one year. The current market value of the firm's assets is $48,600. The standard deviation of the return on the firm's assets is 35 percent per year, and the annual risk-free rate is 6 percent per year, compounded continuously. Based on the Black–Scholes model, what is the market value of the firm's equity and debt? What is the firm's continuously compounded cost of debt?

Reference no: EM131067538

Questions Cloud

Additional evidence based on the questions : After you have asked at leasttwo questions of your own and have collected additional evidence based on the questions your classmates have provided, you should then develop and post a specific, testable hypothesis about what is in the can.
Read the description below of a fictitious company : Description of the entity: The Grafton Photography club is a photography club in Grafton, WV which offers non-profit organizations our services at no cost to them. The club enjoys taking photos and we also enjoy helping our community look more pro..
Cost of equity using the fama-french model : A company is trying to determine it's cost of equity using the Fama-French model. The high book to market portfolio minus the low book to market value portfolio is -2.00%.
Straight-line method of depreciation : Each project is expected tohave zero salvage value at the end of the project. Ueker Companyuses the straight-line method of depreciation. FIND IRR.
What is the market value of the firms equity and debt : Equity as an Option   Sunburn Sunscreen has a zero coupon bond issue outstanding with a $20,000 face value that matures in one year. The current market value of the firm's assets is $23,200. Based on the Black–Scholes model, what is the market value ..
Velocity of the its center of mass : A solid cylinder (I=0.5MR^2) rolls without slipping 30 m down an incline. If thetha = 30 degrees, fidn the velocity of the its center of mass at the bottom of the incline.
What is initial cash flow of the butterfly spread strategy : Suppose you are creating a butterfly spread using call options with 3 different strike prices. Currently, the call price with strike price of $40 is $22.21, the call with strike price of $50 is $11.62, and the call with strike price of $60 is $5.25. ..
Design of speed reducing-power transmitting-gearboxes : Design process for a speed reducing, power transmitting gearbox. This gearbox will be efficient and effective in its operations for different applications. The calculations for the design of different parts should be done using Mat lab software. a..
Stocks and bonds-from variety of investment alternatives : Use this information to answer the following 2 related questions: Rob is a financial manager with Sharez, an investment advisory company. He must select specific investments—for example, stocks and bonds—from a variety of investment alternatives. Wha..

Reviews

Write a Review

Financial Management Questions & Answers

  Present value of tax benefits from depreciation

Your company is considering a new project that will require $825,000 of new equipment at the start of the project. The equipment will have a depreciable life of 9 years and will be depreciated to a book value of $141,000 using straight-line depreciat..

  Recently purchased machinery parts worth

Trident Corp. recently purchased machinery parts worth 23.5 million Mexican Pesos (MP). Management needs to find out the U.S. dollar cost of the payables. It has access to two quotes for Canadian dollars (C$): C$1.0774/$ and C$0.0981/MP. What will it..

  Portfolios with high market capitalizations

Portfolios with high market capitalizations will have positive alphas if the market portfolio is not efficient. The book-to-market is the observation that firms with high book-to-market ratios have positive alphas. If the market portfolio is not effi..

  Covariance of returns between willow stock and sky diamond

The covariance of the returns between Willow Stock and Sky Diamond 0.0950. The variance of Willow is 0.2330 and the variance of Sky Diamond is 0.1240. What is the correlation coefficient between the returns of the two stocks?

  What is the present worth equivalent cost to the contractor

A grader costs $350,000 to purchase and is expected to have a useful life of 8 years. Annual operating and maintenance costs are estimated to be $35,000 per year, and the salvage value after 8 years of use is estimated to be $50,000. At an interest r..

  What are the firms interest tax savings-supply net income

Dharma Supply has earnings before interest and taxes (EBIT) of $527000, interest expenses of $334000 bad faces a corporate tax rate of 35 percent. What is Dharma Supply's Net Income? what would dharma’s net income be if it didn’t have any debt? what ..

  Incremental cash flows

Incremental Cash Flows: Which of the following should be treated as an incremental cash flow when computing the NPV of an investment?

  Raise capital by issuing new securities in secondary markets

Companies raise capital by issuing new securities in secondary markets. Preferred dividend payments are fixed amounts paid on a regular basis. Preferred stock with no fixed maturity can be valued using the present value of a perpetuity formula.

  Estimate of the stocks current price

A company currently pays a dividend of $3.75 per share (D0 = $3.75). It is estimated that the company's dividend will grow at a rate of 21% per year for the next 2 years, then at a constant rate of 7% thereafter. The company's stock has a beta of 1.0..

  What should the exchange rate be five years from now

Currently, you can exchange €100 for $134.15. The inflation rate in Euroland is expected to be 3.1 percent as compared to 3.6 percent in the U.S. Assuming that relative purchasing power parity exists, what should the exchange rate be five years from ..

  Invest in marketable securities

St. Luke’s Convalescent Center has $200,000 in surplus funds that it wishes to invest in marketable securities. If transaction costs to buy and sell the securities are $2,200 and the securities will be held for three months, what required annual yiel..

  What is their net income

A Company has 12,000,000 in sales. COGS are 40% of sales. Operating costs are $1,200,000plus depreciation expense of $80,000 and interest expense $80,000. Tax rate is 40%. They have 1,000,000 shares of stock outstanding. What is their net income? If ..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd