2 Sunburn Sunscreen has a zero coupon bond issue outstanding with a $10,000 facevalue that matures in one year. The current market value of the firm's assets is $10,900.The standard deviation of the return on the firm's assets is 31 percent per year, and theannual risk-free rate is 6 percent per year, compounded continuously. The firm isconsidering two mutually exclusive investments. Project A has an NPV of $2,400, andProject B has an NPV of $2,800. As the result of taking Project A, the standard deviationof the return on the firm's assets will increase to 49 percent per year. If Project B is taken,the standard deviation will fall to 26 percent per year.a-1. What is the value of the firm's equity and debt if Project A is undertaken? (Do notround intermediate calculations and round your answers to 2 decimal places,e.g., 32.16.)EquityDebt

Here, Face Value of Debt is $10,000 Value of Total Assets is $10,900 Standard Deviation of return on…

Answered: Sunburn Sunscreen has a zero coupon…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter7: Common Stock: Characteristics, Valuation, And Issuance

Section: Chapter Questions

Problem 11P

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