Buckeye Industries has a bond issue with a face value of $1,000 that is coming due in one year. The value of the companys assets is currently $1,240. Urban Meyer, the CEO, believes that the assets in the company will be worth either $910 or $1,430 in a year. The going rate on one-year T-bills is 4 percent.

a-1. What is the value of the companys equity?

a-2. What is the value of the debt?

Suppose the company can reconfigure its existing assets in such a way that the value in a year will be $950 or $1,750.

b. If the current value of the assets is unchanged, what is the new value of the company's equity?