What is the market value of the firms debt

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Reference no: EM13300501

Winnipesaukee Company has a discount bank loan that matures in one year and required the firm to pay $1,000. The current market value of the firm assets is $1,200. The annual income variance of the value of the firms assets is .30 and the annual risk-free interest rate is 6%. Winnipesaukee is considering two mutually exclusive investments. Project A has an NPV of $100, and Project B has an NPV of $150. If Project A is accepted, the firm's variance will increase to .40. If Project B is accepted, the variance will decrease to .25.

A) What is the market value of the firms debt and equity before undertaking any investment?

B)What is the value of the firms assets, debt, and equity after accepting Project A? What is the value of the firms assets, debt and equity after accepting Project B? Which project would the stockholders choose? and Why?

Reference no: EM13300501

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