Rackin Pinion Corporations assets are currently worth $1,100. In one year, they will be worth either $1,000

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Rackin Pinion Corporation’s assets are currently worth $1,100. In one year, they will be worth either $1,000 or $1,300. The risk-free interest rate is 5 percent. 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 risk-free rate were 20 percent? Why? What does your answer illustrate?

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Fundamentals Of Corporate Finance

ISBN: 9780072553079

6th Edition

Authors: Stephen A. Ross, Randolph Westerfield, Bradford D. Jordan

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Question Posted: Oct 04, 2023 03:00 AM

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Rackin Pinion Corporations assets are currently worth $1,100. In one year, they will be worth either $1,000

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a What is the value of the equity The value of the equity can be calculated as the difference between the value of the companys assets in one year and ...View the full answer

Fundamentals Of Corporate Finance

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