Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
12th Edition
ISBN: 9781259144387
Author: Richard A Brealey, Stewart C Myers, Franklin Allen
Publisher: McGraw-Hill Education
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Chapter 23, Problem 15PS
Default option valuation Look back at the first Backwoods Chemical example at the start of Section 23-1. Suppose that the firm’s book
The debt has a one-year maturity and a promised interest payment of 9%. Thus, the promised payment to Backwoods’s creditors is $1,090. The market value of the assets is $1,200 and the standard deviation of asset value is 45% per year. The risk-free interest rate is 9%. Calculate the value of Backwoods debt and equity.
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Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
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