Normal distribution probabilities

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You are considering investing in a firm that is in financial distress. While the assets are valued at $25 million, the face value of its debt is $38 million (i.e.: it owes more than the value of its assets). Regular valuation techniques would indicate that the value of equity for this firm is zero (as it can't be negative). However, you want to apply Real Option Valuation to see if it's worth investing. The standard deviation of the firm asset's value is 20%, the risk-free rate is 5%. The debt is zero-coupon bonds, which matures in 4 years. In addition, an analysts in your team has already computed the option pricing Normal Distribution probabilities, so you know that N(d1)=0.364, and N(d2)=0.228. What is the value of equity for this firm?

Enter your answer in millions, rounded so that there are no decimals. So, if your answer is 12.345678, then just enter 12, but if your answer is 12.55786, then enter 13 (rounding up in this case).

Reference no: EM132820032

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