Sunburn Sunscreen has a zero coupon bond issue outstanding with a $20,000 face value that matures in one year. The current market value of the firms assets is $23,200. The standard deviation of the return on the firms assets is 34 percent per year, and the annual risk-free rate is 6 percent per year, compounded continuously. The firm is considering two mutually exclusive investments. Project A has an NPV of $1,800, and Project B has an NPV of $2,600. As the result of taking Project A, the standard deviation of the return on the firms assets will increase to 46 percent per year. If Project B is taken, the standard deviation will fall to 25 percent per year.

a-1.	What is the value of the firms equity and debt if Project A is undertaken? (Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16))

	Market value
Equity	$ Not attempted
Debt	$ Not attempted

a-2.	What is the value of the firms equity and debt if Project B is undertaken? (Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16))

	Market value
Equity	$ Not attempted
Debt	$ Not attempted

b.	Which project would the stockholders prefer?
	Project A Project B

c.	Suppose the stockholders and bondholders are in fact the same group of investors. Would this affect your answer to (b)?
	No Yes