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Frostbite Thermalwear has a zero coupon bond issue outstanding with a face value of $39,000 that matures in one year. The current market value of the firm's assets is $42,400. The standard deviation of the return on the firm's assets is 40 percent per year, and the annual risk-free rate is 6 percent per year, compounded continuously.
a.Based on the Black-Scholes model, what is the market value of the firm's equity and debt? (Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16))
Market value Equity$ Debt$ b.What is the firm's continuously compounded cost of debt? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))
Cost of debt %
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