Sunburn Sunscreen has a zero coupon bond issue outstanding with a $22,000 face value that matures in one year. The current market value of the firms assets is $24,600. The standard deviation of the return on the firms assets is 34 percent per year, and the annual risk-free rate is 4 percent per year, compounded continuously. The firm is considering two mutually exclusive investments. Project A has an NPV of $2,000, and Project B has an NPV of $2,800. As the result of taking Project A, the standard deviation of the return on the firms assets will increase to 45 percent per year. If Project B is taken, the standard deviation will fall to 27 percent per year.

1. What is the value of the firms equity and debt if Project A is undertaken?

2. What is the value of the firms equity and debt if Project B is undertaken?