What is the value of the company equity

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Jack Ltd. has a zero coupon bond that matures in five years with a face value of $40,000. The current value of the company's assets is $38,000 and the standard deviation of its return on assets is 50 percent per year. The risk-free rate is 6 percent per year, .

(a) What is the value of a risk-free bond with the same face value and maturity as the current bond?

(b) What is the value of the company's equity?

(c) What is the value of the company's debt?

(d) Assume the company can restructure its assets so that the standard deviation of its return on assets increases to 60 percent per year. What is the new value of the debt?

(e) If the company restructures its assets, how much will bondholders gain or lose?

(f) If the company restructures its assets, how much will stockholders gain or lose?

Reference no: EM133060508

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