Sunburn Sunscreen has a zero coupon bond issue outstanding with a face value of $14,000 that matures in one year. The current market value of the firm's assets is $15,300. The standard deviation of the return on the firm's assets is 34 percent per year, and the annual risk-free rate is 5 percent per year, compounded continuously. The firm is considering two mutually exclusive investments. Project A has an NPV of $2,900 and Project B has an NPV of $3,800. As the result of taking Project A, the standard deviation of the return on the firm's assets will increase to 47 percent per year. If Project B is taken, the standard deviation will fall to 20 percent per year.

1.	What is the value of the firm's equity and debt if Project A is undertaken? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
2.	What is the value of the firm's equity and debt if Project B is undertaken? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

Answer rating: 100% (QA)

To solve this we can use the ModiglianiMiller proposition to find the va... View the full answer