A company has a single zero coupon bond outstanding that maturesin five years with a face value of $36 million. The current valueof the company’s assets is $26 million and the standard deviationof the return on the firm’s assets is 42 percent per year. Therisk-free rate is 5 percent per year, compounded continuously.

a. What is the current market value of the company’s equity? (Donot round intermediate calculations and enter your answer indollars, not millions of dollars, rounded to 2 decimal places,e.g., 1,234,567.89.)

b. What is the current market value of the company’s debt? (Donot round intermediate calculations and enter your answer indollars, not millions of dollars, rounded to 2 decimal places,e.g., 1,234,567.89.)

c. What is the company’s continuously compounded cost of debt?(Do not round intermediate calculations and enter your answer as apercent rounded to 2 decimal places, e.g., 32.16.)

d. The company has a new project available. The project has anNPV of $2,500,000. If the company undertakes the project, what willbe the new market value of equity? Assume volatility is unchanged.(Do not round intermediate calculations and enter your answer indollars, not millions of dollars, rounded to 2 decimal places,e.g., 1,234,567.89.)

e. Assuming the company undertakes the new project and does notborrow any additional funds, what is the new continuouslycompounded cost of debt? (Do not round intermediate calculationsand enter your answer as a percent rounded to 2 decimal places,e.g., 32.16.)