Frostbite Thermalwear has a zero coupon bond issue outstanding with a face value of $40,000 that...

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Finance

Frostbite Thermalwear has a zero coupon bond issue outstandingwith a face value of $40,000 that matures in one year. The currentmarket value of the firm’s assets is $43,600. The standarddeviation of the return on the firm’s assets is 38 percent peryear, and the annual risk-free rate is 5 percent per year,compounded continuously.

a.
Based on the Black–Scholes model, what is the market value ofthe firm’s equity and debt? (Do not round intermediatecalculations and round your answers to 2 decimal places, e.g.,32.16.)

Market value
  Equity $
  Debt $

b.
What is the firm’s continuously compounded cost of debt?(Do not round intermediate calculations and enter youranswer as a percent rounded to 2 decimal places, e.g.,32.16.)

  Cost of debt %

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Frostbite Thermalwear has a zero coupon bond issue outstandingwith a face value of $40,000 that matures in one year. The currentmarket value of the firm’s assets is $43,600. The standarddeviation of the return on the firm’s assets is 38 percent peryear, and the annual risk-free rate is 5 percent per year,compounded continuously. a.Based on the Black–Scholes model, what is the market value ofthe firm’s equity and debt? (Do not round intermediatecalculations and round your answers to 2 decimal places, e.g.,32.16.) Market value Equity$ Debt$ b.What is the firm’s continuously compounded cost of debt?(Do not round intermediate calculations and enter youranswer as a percent rounded to 2 decimal places, e.g.,32.16.) Cost of debt%