The market value of the assets of a corporation is currently $15 million. The firm...
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Finance
The market value of the assets of a corporation is currently $15 million. The firm has on issue a debt outstanding with a par value of $13.2 million and a due date of exactly four years. No intermediate interest payments are required. The risk-free (continuous) rate is 4.5%, and the standard deviation of returns of the firm's assets is 70%. Fortunately for the bank loan officer, she learns that a dividend of $1.8 million will be paid within days. (Hint: It can be assumed that the dividend will be paid immediately.) What should be today's equity value and debt value and the fair interest rate required by the debt holders? State any simplifying assumptions made in your calculations
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