Hema Corp. is an all-equity firm with a current market value of $1,020 million (i.e., 1.02 billion), and will be worth $918 million or $1,428 million in one year. The risk-free interest rate is 5% . Suppose Hema Corp. issues zero-coupon, one-year debt with a face value of $1,071 million, and uses the proceeds to pay a special dividend to shareholders. Suppose that in the event Hema Corp. defaults, $90 million of its value will be lost to bankruptcy costs. Assume there are no other market imperfections.

a. What is the present value of these bankruptcy costs, and what is their delta with respect to the firm's assets?

b. In this case, what is the value and yield of Hema's debt?

c. In this case, what is the value of Hema's equity before the dividend is paid? What is the value of equity just after the dividend is paid?

A)

The delta of the option is_____ (round to 4 decimal places)

The present value of the bankruptcy is _______ million (round to nearest integer)

B)

The value of the debt is $________ million (round to nearest integer)

The yield of the debt is________ (round to two decimal places)

C)

The value of Hema's equity before the dividend is paid is $_____million (round to nearest integer)

The value of Hema's equity after the dividend is paid is $________ million (round to nearest integer)