Question

please show how to do calculation

Higgs Bassoon Corporation is a custom manufacturer of bassoons and other wind instruments. Its current value of operations, which is also its value of debt plus equity, is estimated to be $200 million. Higgs has $110 million face value, zero coupon debt that is due in 3 years. The risk-free rate is 5%, and the standard deviation of returns for similar companies is 60%. The owners of Higgs Bassoon view their equity investment as an option and would like to know the value of their investment.
							c.  How much would the equity value and the yield on the debt change if Fethe's management were able to use risk management techniques to reduce its volatility to 45 percent?  Can you explain this?
														Equity value at 60% volatility				million		?
							Equity value at 45% volatility				million		?
							Percent change				million		?
d. Graph the cost of debt versus the face value of debt for values of the face value from $0.5 to $8 million.
	Cost of Debt
Face Value of Debt		hint:  use a data table
10
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90
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160

Answer 1