Rackin Pinion Corporations assets are currently worth $1,030. In one year, they will be worth either $1,000

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Rackin Pinion Corporation’s assets are currently worth $1,030. In one year, they will be worth either $1,000 or $1,270. The risk-free interest rate is 3.7 percent. Suppose the company 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 risk-free rate were 20 percent? Why? What does your answer illustrate?

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Fundamentals Of Corporate Finance

ISBN: 9781265553609

13th Edition

Authors: Stephen Ross, Randolph Westerfield, Bradford Jordan

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Question Posted: Aug 24, 2021 07:15 AM

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Rackin Pinion Corporations assets are currently worth $1,030. In one year, they will be worth either $1,000

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a The value of equity is the difference between the value of the assets and the value of the debt ...View the full answer

Fundamentals Of Corporate Finance

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