The Value of the Firm (V) is $340 million, the Face Value of the Debt (B) is
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The Value of the Firm (V) is $340 million, the Face Value of the Debt
(B) is $160 million, the time to maturity of the debt (t) is 2.00 years, the riskfree rate ( RF k ) is 5.0%, and the standard deviation of the return on the firm’s assets
(σ) is 50.0%. There are two different methods for valuing the firm’s equity and risky debt based in an option pricing framework. Using both methods, what is the firm’s Equity Value (E) and Risky Debt Value (D)? Do both methods produce the same result?
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