Question
please show all formulas and reasoning for this question, thank you in advance CAR Inc. will be liquidated in one year. The value of CARs
please show all formulas and reasoning for this question, thank you in advance
CAR Inc. will be liquidated in one year. The value of CARs assets is currently $650 million, and next year it will be either $825 million or $400 million. Before shareholders can be paid next year, CAR will have to repay $500 million of debt. (I.e. CAR has zero coupon debt outstanding with exactly one year to maturity and a total face value of $500 million.) The risk free rate is 4%.
a) What is the current value of CARs equity?
b) What is the current value of CARs debt?
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Development Finance Innovations For Sustainable Growth
Authors: Nicholas Biekpe, Danny Cassimon, Andrew William Mullineux
1st Edition
331954165X, 978-3319541655
