What is the value of the debt

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Reference no: EM131814871

Rackin Pinion Corporation’s assets are currently worth $1,110. In one year, they will be worth either $1,070 or $1,360. The risk-free interest rate is 5 percent. Suppose the company has an outstanding debt issue with a face value of $1,000.

a. What is the value of the equity? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Equity value $

b-1. What is the value of the debt? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Debt value $

b-2. What is the interest rate on the debt? (Do not round intermediate calculations. Enter your answer as a percent rounded to the nearest whole number, e.g., 32.)

Interest rate %

c. Would the value of the equity go up or down if the risk-free rate were 7 percent?

Decrease

Increase

Reference no: EM131814871

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