Question
In: Finance
Frostbite Thermalwear has a zero coupon bond issue outstanding with a face value of $40,000 that...
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Frostbite Thermalwear has a zero coupon bond issue outstanding with a face value of $40,000 that matures in one year. The current market value of the firm’s assets is $43,600. The standard deviation of the return on the firm’s assets is 38 percent per year, and the annual risk-free rate is 5 percent per year, compounded continuously. |
| a. |
Based on the Black–Scholes model, what is the market value of the firm’s equity and debt? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) |
| Market value | |
| Equity | $ |
| Debt | $ |
| b. |
What is the firm’s continuously compounded cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) |
| Cost of debt | % |
Solutions
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