Question: Closter, Inc., has a bond issue with a face value of $1,000 that is coming due in one year. The value of the companys assets

Closter, Inc., has a bond issue with a face value of $1,000 that is coming due in one year. The value of the companys assets is currently $1,180. Ashok Vora, the CEO, believes that the assets in the company will be worth either $970 or $1,470 in a year. The going rate on one-year T-bills is 6 percent.

a-1.

What is the value of the companys equity?

a-2.

What is the value of the debt?

Suppose the company can reconfigure its existing assets in such a way that the value in a year will be $890 or $1,690.

b.	If the current value of the assets is unchanged, what is the new value of the company's equity?

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