User Account

All Pages

How much is the debt worth today and what is its yield

Assignment Help Corporate Finance
Reference no: EM131406157

Assignment

Your boss now wants you to help Higgs Bassoon Corporation. 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 zero coupon debt outstanding that matures in 3 years with $110 million face value. 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 its value. Start with the attached partial model, and answer the following questions:

• Using the Black-Scholes option pricing model, how much is the equity worth?

• How much is the debt worth today? What is its yield?

• How would the equity value change if the company used risk management techniques to reduce its volatility to 45%? Can you explain this?

• Graph the cost of debt versus the face value of debt for values of the face value from $10 to $160 million.

• Graph the values of debt and equity for volatilities from 0.10 to 0.90 when the face value of the debt is $100 million.

Reference no: EM131406157

Questions Cloud

Workings of any home buyer assistance schemes : Describe the workings of any home buyer assistance schemes and stamp duty concessions that may be available in your State or Territory. Would your client be eligible for any of these?
How does diversification reduce risk : Explain the relationship between risk and return. How does diversification reduce risk? Give an example of how diversification can reduce risk in a portfolio.
Concept of program management : You are attending the next weekly meeting of project managers in your organization's project management office (PMO). The discussion this week focuses on the concept of program management as it relates to project management.
Discuss the recreational therapy intervention : Locate one research study that has been published in the Therapeutic Recreation Journal, American Journal of Recreation Therapy, or Annual in Therapeutic Recreation within the last five years. This article must include a study that involved a recr..
How much is the debt worth today and what is its yield : How much is the debt worth today? What is its yield? How would the equity value change if the company used risk management techniques to reduce its volatility to 45%? Can you explain this?
Determine the project life cycle elements : Use your course materials, textbook, and Web resources to determine the project life cycle elements and the major activities for a software implementation project. For each project life cycle element, list at least 2 primary tasks related to the P..
What is alderfer existence-relatedness-growth theory : What is alderfer's existence-relatedness-growth theory, how does it differ from Maslow's Hierarchy?
How competitive is the market you will be entering : Microeconomic. Assess the microeconomic factors that might affect decisions about the proposed investment. Support your response with specific examples. For example, how competitive is the market you will be entering?
Discuss about the public health issue like smoking cessation : First, briefly describe the issue that you have chosen. What aspects of this issue make it difficult to encourage people to adopt? For example, encouraging people to get the flu vaccine might be a challenge due to vaccine safety fears.Second, det..

Reviews

Write a Review

Corporate Finance Questions & Answers

  Impact of the global economic crisis on business environment

This paper reviews the article of ‘the impact of the global economic crisis on the business environment' that is written by Roman & Sargu (2011).

  Explain the short and the long-run effects on real output

Explain the short and the long-run effects on real output, price, and unemployment

  Examine the requirements for measuring assets

Examine the needs for measuring assets at fair value in accounting standards

  Financial analysis report driven by rigorous ratio analysis

Financial analysis report driven by rigorous ratio analysis

  Calculate the value of the merged company

Calculate the value of the merged company, the gains (losses) to each group of shareholders, NPV of the deal under different payment methods. Synergy remains the same regardless of payment method.

  Stock market project

Select five companies for the purpose of tracking the stock market, preparing research on the companies, and preparing company reports.

  Write paper on financial analysis and business analysis

Write paper on financial analysis and business analysis

  Intermediate finance

Presence of the taxes increase or decrease the value of the firm

  Average price-earnings ratio

What is the value per share of the company's stock

  Determine the financial consequences

Show by calculation the net present value for the three alternatives (no education, network design certification, mba). Also, according to NPV suggest which alternative you advise your friend to choose

  Prepare a spread sheet model

Prepare a spread sheet model for the client that determines NPV/IRR with and without tax.

  Principles and tools for financial decision-making

Principles and tools for financial decision-making. Analyse the concept of corporate capital structure and compute cost of capital.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd