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The enterprise value of the BestAttempt Corporation is $310 million. The company has issued a zero-coupon bond with a face value of $200 million which expects to mature in five years. The expected rate of change of the firm's value is 25%. The firm's assets have an annual volatility (standard deviation) of 30%. Assume that firm value is lognormally distributed, with constant volatility. You are required to estimate the distance to default using the Merton model. What are/is the main limitation/s of the Merton model? Explain
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- Sunburn Sunscreen has a zero coupon bond issue outstanding with a face value of $11,000 that matures in one year. The current market value of the firm's assets is $13,100. The standard deviation of the return on the firm's assets is 29 percent per year, and the annual risk-free rate is 5 percent per year, compounded continuously. Based on the Black-Scholes model, what is the market value of the firm's equity and debt? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) Equity Debtsunburn sunscreen has a zero coupon bond issue outstanding with a $21,000 face value that matures in one year. the current market value of the firm's assets is $22,800. The standard deviation of the return on the firm's assets is 26 percent per year, and the annual risk-free rate is 5 percent per year, compounded continuously. based on the black-scholes model, what is the market value of the firm's equity and debt?Frostbite Thermalwear has a zero coupon bond issue outstanding with a face value of $22,000 that matures in one year. The current market value of the firm's assets is $24,000. The standard deviation of the return on the firm's assets is 52 percent per year, and the annual risk-free rate is 6 percent per year, compounded continuously. Based on the Black-Scholes model, what is the market value of the firm's equity? Equity Based on the Black-Scholes model, what is the market value of the firm's debt? Debt What is the firm's continuously compounded cost of debt? Cost of debt
- Miltmar Corporation will pay a year-end dividend of $4, and dividends thereafter are expected to grow at the constant rate of 6% per year. The risk-free rate is 5%, and the expected return on the market portfolio is 10%. The stock has a beta of 0.66.Required: a. Calculate the market capitalization rate. (Do not round intermediate calculations. Round your answer to 2 decimal places.) b. What is the intrinsic value of the stock?Frostbite thermalwear has a zero coupon bond issue outstanding with a face value of 18,000 that matures in one year. The curent market value of the firm assets is 22,000. The standard deviation of the return on the firm assets is 51 percent per year, and the annual risk free rate is 7 percent per year, compounded continuously. what is the Market value of the firm's equity? What is the Market value of the firm's debt?A company has its debt structured as a single zero-coupon bond that matures in 5 years. The face value of the debt outstanding is $40 million and the current value of the company's total assets is $36 million. The standard deviation of the return of its assets is 30 percent per year, and the risk-free rate is estimated to be about 5 percent per year, compounded continuously. Suppose this company has a new project opportunity available. This project has an estimated NPV of $3,000,000. If the company undertakes the project, what will be the new market value of equity? Assume volatility is unchanged. Assuming the company decided to undertake the new project and does not borrow any additional funds, what is the new continuously compounded cost of debt? Explain in detail the impact this project has on the cost of debt.
- Sunburn Sunscreen has a zero coupon bond issue outstanding with a $9,000 face value that matures in one year. The current market value of the firm's assets is $9,600. The standard deviation of the return on the firm's assets is 36 percent per year, and the annual risk-free rate is 7 percent per year, compounded continuously. Based on the Black Scholes model, what is the market value of firm’s equity and the market value of the firm's debt?Assume you expect a company’s net income to remain stable at $3500 for all future years, and you expect all earnings to be distributed to stockholders at the end of each year, so that common equity also remains stable for all future years (this also assumes a clean surplus). Also, assume the company’s β = 1.3, the market risk premium is 5% and the 10-year yield on risk-free government bonds is 5%. Finally, assume the company has 1300 ordinary shares outstanding. Required: a) Use the CAPM to estimate the company’s equity cost of capital. b) Compute the expected net distributions to stockholders (dividends) for each future year.Assume that you are on the financial staff of Kumpulan Bossque, and you have collected the following data to estimate the company’s WACC. (1) The firm's noncallable bonds mature in 10 years, have an 8.00% annual coupon and a current yield of 7.62% (2) The company’s tax rate is 27%. (3) The risk-free rate is 6.00%, the market risk premium is 7.00%, and the stock’s beta is 1.20. (4) The target capital structure consists of 45% debt and the balance is common equity. Kumpulan Bossque uses the CAPM to estimate the cost of equity, and it does not expect to issue any new common stock.
- Assume that you are on the financial staff of Kumpulan Bossque, and you have collected the following data to estimate the company’s WACC. (1) The firm's noncallable bonds mature in 10 years, have an 8.00% annual coupon and a current yield of 7.62% (2) The company’s tax rate is 27%. (3) The risk-free rate is 6.00%, the market risk premium is 7.00%, and the stock’s beta is 1.20. (4) The target capital structure consists of 45% debt and the balance is common equity. Kumpulan Bossque uses the CAPM to estimate the cost of equity, and it does not expect to issue any new common stock. What is after tax cost of debt?You are considering an investment in Justus Corporation's stock, which is expected to pay a dividend of $1.75 a share at the end of the year (D1 = $1.75) and has a beta of 0.9. The risk-free rate is 4.3%, and the market risk premium is 5.5%. Justus currently sells for $25.00 a share, and its dividend is expected to grow at some constant rate, g. Assuming the market is in equilibrium, what does the market believe will be the stock price at the end of 3 years? (That is, what is ?) Do not round intermediate calculations. Round your answer to the nearest cent. $ ?You are considering an investment in Justus Corporation's stock, which is expected to pay a dividend of $1.75 a share at the end of the year (D1 = $1.75) and has a beta of 0.9. The risk-free rate is 4.6%, and the market risk premium is 5.5%. Justus currently sells for $31.00 a share, and its dividend is expected to grow at some constant rate, g. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the question below. Open spreadsheet Assuming the market is in equilibrium, what does the market believe will be the stock price at the end of 3 years? (That is, what is ?) Round your answer to two decimal places. Do not round your intermediate calculations. $ fill in the blank 2