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Before a recapitalization, an all equity (no debt company) firm has 500 shares trading at 1. It decides to recapitalize by issuing debt in the
Before a recapitalization, an all equity (no debt company) firm has 500 shares trading at 1. It decides to recapitalize by issuing debt in the form a zero-coupon with a remaining maturity of 5 years and a principal 400. The price of a call option traded on one share of the company is C=0.3 for maturity 5 years and strike price 0.8. The risk free rate is r=0.01 for 5 years maturity.
What is the value of the debt of the firm after recapitalization?
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