Bezos Corp. is a startup that has just been created via an initial funding of $100,000 of equity and $300,000 of debt. This funding was used to acquire equipment worth $400,000 that is expected to generate cash flows worth a present value of $500,000 over the life of the project (i.e. the project has positive NPV of $100,000). Soon after the creation of this firm the founder-manager becomes aware of a new investment opportunity that has a net present value (NPVGO) of $200,000 and this announcement is made through a press release. This new project will require $400,000 in additional investment in equipment that is expected to come from $200,000 of equity and $200,000 of debt and will generate a present value of cash flows of $600,000 (hence the NPVGO of $200,000). Consider the market value balance sheet of the company just after the announcement of this project (but before raising any funds or taking any action on the project). Based on a simplified market value balance sheet using assets, debt, and equity, identify the correct statement at a point in time just after the announcement of the last bit of news but before any funding or investment has occurred for the last project. Assume that all debt is issued at par and has a book value that equals market value at time of issuance.

a.

The market value of debt is $600,000

b.

The market value of equity is less than the market value of debt.

c.

The market value of all assets is $1,100,000

d.

The market value of all assets is $500,000

e.

The market value of assets equals $400,000

f.

The book value of assets equals the market value of debt.

g.

The market value of equity equals the book value of assets