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Markus Co . is a manufacturing firm. Markus Co . ' s current value of operations, including debt and equity, is estimated to be $
Markus Co is a manufacturing firm. Markus Cos current value of operations, including debt and equity, is estimated to be $ million. Markus Co has
$ million facevalue zero coupon debt that is due in two years. The riskfree rate is and the volatility of companies similar to Markus Co is
Markus Cos performance has not been very good as compared to previous years. Because the company has debt, it will repay its loan, but the
company has the option of not paying equity holders. The ability to make the decision of whether to pay or not looks very much like an option.
Based on your understanding of the BlackScholes option pricing model OPM calculate the following values and complete the table. Note: Use
as the approximate value of e in your calculations. Also, do not round intermediate calculations. Round your answers to two decimal places.
Markus Co Value Millions of dollars
Equity value
Debt value
Debt yield
Markus Cos management is implementing a risk management strategy to reduce its volatility. Complete the following table, assuming that the goal is
to reduce Markus Cos volatility to
Markus Co Goal Millions of dollars
Equity value at volatility
Debt value at volatility
Debt yield at volatility
Complete the following sentence, assuming that Markus Cos risk management strategy is successful:
If its risk management strategy is successful and Markus Co can reduce its volatility, the value of Markus Cos debt will
and the value
of its stock will
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