Question
the current market value of the firm's asset is $10000 with a zero coupon bound issue outstanding with $5000 face value that matures in three
the current market value of the firm's asset is $10000 with a zero coupon bound issue outstanding with $5000 face value that matures in three years. The standard deviation of the return on the firm's assets is 30% per year and the annual risk-free rate is 5% per year. The project would bring in NPV of $2500 and if the firm takes this project, the standard deviation of the return on the firm asset will increase to 45% per year using Black-schole option mode, calculate the following value of the firm after investment: 1)the market value of assets, 2) face value of zero coupon debt, 3) debt maturity(years) 4) asset return standard deviation, 5) risk-free rate. Alsocalculated frim's equality and debt if this project is undertaken.
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