In: Finance
Consider a firm that has a zero-coupon bond that matures in 4 years. The face value is $30 million, and the risk-free rate is 6%. The current market value of the firm’s assets is $40 million, and the firm’s equity is currently worth $18 million. Suppose the firm is considering a project with an NPV = $500,000. What is the implied standard deviation of returns? What is the delta? What is the approximate change in stockholder value from an NPV of $500,000?