Question
Frostbite Thermalwear has a zero coupon bond issue outstanding with a face value of $33,000 that matures in one year. The current market value of
Frostbite Thermalwear has a zero coupon bond issue outstanding with a face value of $33,000 that matures in one year. The current market value of the firms assets is $36,400. The standard deviation of the return on the firms assets is 43 percent per year, and the annual risk-free rate is 6 percent per year, compounded continuously. |
a. | Based on the BlackScholes model, what is the market value of the firms equity and debt? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) |
Market value | |
Equity | $ |
Debt | $ |
b. | What is the firms continuously compounded cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) |
Cost of debt | % |
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