Burma Corp. has a zero coupon bond issue outstanding with a $5,000,000 that matures in one year. The current market value of the firms' asset is $5,260,000 million. The standard deviation of the return on the firm's assets in 38% per year. The current price of Burma's stock is $20. There are two European options written on the stock, a call and a put. Exercise price for both options are $30 and they both have 6 months until maturity. The annual risk-free rate is 5% per year, compounded continuously.

a. Use the Black-Scholes model to calculate the value of the call option. (5 marks)

b. Use the Put-Call parity to calculate the value of the put option. (3 marks)

c. What is the market value of the firm's equity and debt? (5 marks)

d. Suppose the firm is considering two mutually exclusive investments. Project A has an NPV of 240,000, and project B has an NPV of 320,000. As a result of taking Project A, the standard deviation of the return on firm's assets will increase to 55% per year. If project B is taken, the standard deviation will fall to 34% per year. What is the value of the firm's equity and debt is Project A is undertaken? If Project B is undertaken? (8 marks)

e. Which project would the stockholders prefer? Can you reconcile your answer with the NPV rule? Explain the reason. (4 marks)