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Clipboard Alignment Number E28 G Higgs Bassoon Corporation is a custom...

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Clipboard Alignment Number E28 G Higgs Bassoon Corporation is a custom manufacturer of bassoons and other wind instruments. Its current value of operations, which is also its value of debt plus equity, is estimated to be $200 million. Higgs has $110 million face value, zero coupon debt that is due in 3 years. The risk free rate is 5%, and the standard deviation of returns for similar companies is 60%. The owners of Higgs Bassoon view their equity investment as an option and would like to know the value of their investment. 12 a. Using the Black-Scholes Option Pricing Model, how much is the equity worth? 13 this is the current value of operations 14 Black-Scholes Option Pricing Model 15 Total Value of Firm 16 Face Value of Debt 17 Risk Free rate 18 Maturity of debt (years) 19 Standard Dev. 20 d: 21 d2 22 N(d) 23 N(d) 24 Call Price = Equity Value this is sigma-also known as volatility use the formula from the text use the formula from the text use the Normsdist function in the function wizard million 26 b. How much is the debt worth today? What is its yield? million 28 Debt value = Total Value - Equity Value = 29 Debt yield = 30 Assignment 6 G

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