Question
In: Finance
Sunburn Sunscreen has a zero coupon bond issue outstanding with a $25,000 face value that matures...
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Sunburn Sunscreen has a zero coupon bond issue outstanding with a $25,000 face value that matures in one year. The current market value of the firm’s assets is $27,200. The standard deviation of the return on the firm’s assets is 34 percent per year, and the annual risk-free rate is 5 percent per year, compounded continuously. The firm is considering two mutually exclusive investments. Project A has an NPV of $2,000, and Project B has an NPV of $2,900. As the result of taking Project A, the standard deviation of the return on the firm’s assets will increase to 47 percent per year. If Project B is taken, the standard deviation will fall to 28 percent per year. |
| a-1. |
What is the value of the firm’s equity and debt if Project A is undertaken? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) |
| a-2. | What is the value of the firm’s equity and debt if Project B is undertaken? (Do not round intermediate calculations and round your answers to 2 decimal places, e |
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jeff jeffy answered 1 year agoRelated Solutions
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