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You have a company with $100 in assets. The company has zero-coupon debt with face value of 70 maturing in 3 years.The risk free rate
You have a company with $100 in assets. The company has zero-coupon debt with face value of 70 maturing in 3 years.The risk free rate is 2%. The assets could grow up to 250 or down to 50 in 3 years. The probability of assets going up is 70%. The company raises 30 in new equity and invests them in a project paying off 50 in 3 years.What would be the effect on the market value of debt and equity?
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