Question

Buckeye Industries has a bond issue with a face value of $1,000 that is coming due in one year. The value of Buckeye’s assets is currently $1,100. Urban Meyer, the CEO, believes that the assets in the firm will be worth either $930 or $1,390 in a year. The going rate on one-year T-bills is 2 percent.

  

a-1	What is the value of the company’s equity? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

  

Value of equity

$

  

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

  

Value of debt

$

  

Suppose the company can reconfigure its existing assets in such a way that the value in a year will be $810 or $1,610.

   

b.	If the current value of the assets is unchanged, what is the new value of the company's equity? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

   

Value of equity

$

Answer 1