31. The assets of Bill\'s Boats are currently worth $47,600. These assets are ex

Question

31. The assets of Bill's Boats are currently worth $47,600. These assets are expected to be worth either $45,000 or $53,000 one year from now. The company has a pure discount bond outstanding with a $50,000 face value and a maturity date of one year. The risk-free rate is 4 percent. What is the value of the equity in this firm? (Round your answer to the nearest whole dollar.) 32. A company has a single zero-coupon bond outstanding that matures in 5 years with a face value of $40 million. The current value of the companies assets = $20 million, and the standard deviation of the return on those assets is 50%. The risk-free rte of return is 4%. a. What is the current market value of the company's equity? b. What is the current market value of the company's debt? c. What is the company's continuously compounded cost of debt?

Explanation / Answer

Question no:31 Number of options needed =($53000-$45000)/($3000-$0) =$8000/$3000 =2.66667 Value of assets of Bill boats =$47600 So, $47600 =2.66667*Equity +($45000/1.04) $47600 =2.66667 * Equity +$43269.23 2.66667 * Equity =$47600-$43269.23 =$4330.77 Equity =$4330.77/2.66667 =$1624.04 Value of equity =$1624

Related Questions

Navigate

• Browse (All)
• Browse 3
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.