Square Files assets are worth $100. It has $80 of zero-coupon debt outstanding that is due to

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Square File’s assets are worth $100. It has $80 of zero-coupon debt outstanding that is due to be repaid at the end of two years. The risk-free interest rate is 5%, and the standard deviation of the returns on Square File’s assets is 40% per year. Calculate the present value of the company’s debt and equity.

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Principles of Corporate Finance

ISBN: 978-1260013900

13th edition

Authors: Richard Brealey, Stewart Myers, Franklin Allen

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