a. Using the Black-Scholes Option Pricing Model, how much is the equity worth? Black-Scholes Option Pricing Model Total Value of Firm Face Value of Debt Risk Free rate Maturity of debt (years) Standard Dev. 200.00 this is the current value of operations 100.00 5% 3.00 0.45 this is sigma--also known as volatility 1.4715 use the formula from the text 0.6920 use the formula from the text d1 d2 N(d1) N(d2) Call Price = Equity Value 120.85 million 0.9294 use the Normsdist function in the function wizard 0.7555 b. How much is the debt worth today? What is its yield? Debt value = Total Value - Equity Value = Debt yield = 79.15 8.106% million 3 e 0 1 c. How much would the equity value and the yield on the debt change if Fethe's management were able to use risk management techniques to reduce its volatility to 45 percent? Can you explain this? $2 B3 Equity value at 60% volatility 128.76748 million 34 Equity value at 45% volatility 120.85314 million 35 Percent change -6.1% million 36 37