Equity as an Option Rackin Pinion NVs assets are currently worth 1,050. In one year they will
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Equity as an Option Rackin Pinion NV’s assets are currently worth €1,050. In one year they will be worth either €1,000 or €1,270. The risk-free interest rate is 7 per cent. Suppose Rackin Pinion has an outstanding debt issue with a face value of €1,000.
(a) What is the value of the equity?
(b) What is the value of the debt? The interest rate on the debt?
(c) Would the value of the equity go up or down if the riskfree rate were 20 per cent? Why? What does your answer illustrate?
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Related Book For 
Fundamentals Of Corporate Finance
ISBN: 9780077178239
3rd Edition
Authors: David Hillier, Iain Clacher, Stephen A. Ross
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