Rackin Pinion Corporations assets are currently worth $1,050. In one year, they will be worth...
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Rackin Pinion Corporations assets are currently worth $1,050. In one year, they will be worth either $1,010 or $1,300. The risk-free interest rate is 2 percent. Suppose the company has an outstanding debt issue with a face value of $1,000.
a.
What is the value of the equity? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
b-1.
What is the value of the debt? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
b-2.
What is the interest rate on the debt? (Do not round intermediate calculations and enter your answer as a percent rounded to the nearest whole number, e.g., 32.)
c.
Would the value of the equity go up or down if the risk-free rate were 5 percent?
Decrease
Increase
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