Can you help me get the right answers?
A. Fethe Inc. is a custom manufacturer of guitars, mandolins, and other stringed instruments and is located near Knoxville, Tennessee. Fethe's current value of operations, which is also its value of debt plus equity, is estimated to be $8 million. Fethe has $4 million face value, zero coupon debt that is due in 2 years. The risk-free rate is 5%, and the standard deviation of returns for companies similar to Fethe is 45%. Fethe's owners view their equity investment as an option and would like to know the value of their investment. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below. X Open spreadsheet a. Using the Black-Scholes option pricing model, how much is Fethe's equity worth? Enter your answer in millions. For example, an answer of $1.21 million should be entered as 1.21, not 1,210,000. Do not round intermediate calculations. Round your answer to two decimal places. $ 4,549,305 million b. How much is the debt worth today? Enter your answer in millions. For example, an answer of $1.21 million should be entered as 1.21, not 1,210,000. Do not round intermediate calculations. Round your answer to two decimal places. $ 3,450,695 million 3,450,695 million What is its yield? Do not round intermediate calculations. Round your answer to one decimal place. 7.7 % c. How would the equity value change if Fethe's managers could use risk management techniques to reduce its volatility to 30 %? Enter your answer in millions. For example, an answer of $1.21 million should be entered as 1.21, not 1,210,000. Do not round intermediate calculations. Round your answer to two decimal places. New equity value: 4,407,490 million How would the yield on the debt change if Fethe's managers could use risk management techniques to reduce its volatility to 30%? Do not round intermediate calculations. Round your answer to one decimal place. New yield on the debt: 5.5 % Excel template - Saved File Home Insert (6 5 e Undo B30 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 18 10 19 20 20 ard deviation of returns, a 21 22 22 23 24 25 26 27 28 29 Draw Formulas Calibri 11 === BIUD ab H Font x fx B $8,000,000 $4,000,000 5.00% 45.00% 2 Formulas 1.5645 =(LN(B3/B4)+(B5+B6^2/2)*B7)/(B6*B7^0.5) 0.9412 =NORM.DIST(B10,0,1,TRUE) 0.9281 =B10-B6 B7^0.5 0.8233 =NORM.DIST(B12,0,1,TRUE) $4,549,305 =B3*B11-B4*EXP(-B5*B7)*B13 $3,450,695 =B3-B14 7.7% =((B4/B16)^(1/B7))-1 30.00% 2.0816 =(LN(B3/B4)+(B5+B20^2/2)*B7)/(B20*B7^0.5) 0.9813 =NORM.DIST(B22,0,1,TRUE) 1.6573 =B22-B20 B7^0.5 0.9513 -NORM.DIST(B24,0,1,TRUE) $4,407,490 =B3*B23-B4*EXP(-B5*B7)*B25 $3,592,510 B3-B26 5.5% =((B4/B28)^(1/B7))-1 Paste V Clipboard A Viewed as an Option of operations, P of zero coupon debt, X ree rate, TRE ard deviation of returns, a in years) Scholes Option Pricing Model: d N(d) d N(d2) Value of firm's equity, V Value of firm's debt. D Yield on debt, ra je in Standard Deviation of Returns, a: d Page Layout A^ A A V N(d) d N(d) Value of firm's equity, V Value of firm's debt, D Yield on debt, ra > Sheet1 + Calculation Mode: Automatic Workbook Statistics Search (Alt + Q) Review Merge & Center Data ab Wrap Text Alignment D E View Help General $ % 95.000 V Number G F H Editing A H V Conditional Format As Styles Formatting Table Styles I J K J NT HA H Insert Delete Format V V Cells M L N Editing Show ToolPak Commands Group O P Q R Give Feedback to Microsoft Comments S 80% + A
