Frostbite Thermalwear has a zero coupon bond issue outstanding with a face value of $46,000...
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| Frostbite Thermalwear has a zero coupon bond issue outstanding with a face value of $46,000 that matures in one year. The current market value of the firms assets is $49,600. The standard deviation of the return on the firms assets is 36 percent per year, and the annual risk-free rate is 5 percent per year, compounded continuously. |
| a. | Based on the BlackScholes 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.) |
| b. | What is the firm's continuously compounded cost of debt? |
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