Merry Meerkat Manufacturing is a manufacturing firm. Merry Meerkat's current value of operations, including debt and equity, is estimated to be $$30$

million. Merry Meerkat has $$12$ million face$-$value zero coupon debt that is due in five years. The risk$-$free rate is $6\%,$ and the volatility of companies

similar to Merry Meerkat is $50\%.$ Merry Meerkat's 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 Black$-$Scholes option pricing model $($OPM$),$ calculate the following values and complete the table. $($Note: Use

$2\mathrm{.}7183$ as the approximate value of e in your calculations. Do not round intermediate calculations. Round final answers to two decimal places.$)$

Values: Merry Meerkat Manufacturing

Equity value

Debt value

Debt yield

Merry Meerkat's management is implementing a risk management strategy to reduce its volatility.

Complete the following table, assuming that the goal is to reduce the company's volatility to $30\%.($Note: Do not round intermediate calculations.

Round final answers to two decimal places.$)$

Goals: Merry Meerkat Manufacturing

Equity value at $30\%$ volatility

Debt value at $30\%$ volatility

Debt yield at $30\%$ volatility

Complete the following sentence, assuming that Merry Meerkat's risk management strategy is successful.

If its risk management strategy is successful and Merry Meerkat can reduce its volatility, the value of Merry Meerkat's stock will

the value of its debt will