complete section c and show full excel formulas

2 Higgs Bassoon Corporation is a custom manufacturer of bassoons and other 3 wind instruments. Its current value of operations, which is also its value of 4 debt plus equity, is estimated to be $200 million. Higgs has $110 million face 5 value, zero coupon debt that is due in 3 years. The risk-free rate is 5%, and the 6 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. 8 9 10 a. Using the Black-Scholes Option Pricing Model, how much is the equity worth? 11 12 Black-Scholes Option Pricing Model 13 Total Value of Firm 200.00 this is the current value of operations 14 Face Value of Debt 110.00 15 Risk Free rate 5% 16 Maturity of debt (years) 3.00 17 Standard Dev. 0.60 this is sigma-also known as volatility 18 de 1.2392 use the formula from the text 19 d2 0.2000 use the formula from the text 20 N(d:) 0.8924 use the Normsdist function in the function wizard 21 N(da) 0.5793 22 Call Price = Equity Value $123.63 million 23 24 b. How much is the debt worth today? What is its yield? 25 26 Debt value = Total Value - Equity Value = $ 76.37 million 27 Debt yield 12.934% 28 29 c. How much would the equity value and the yield on the debt change if 30 Fethe's management were able to use risk management techniques to reduce 31 its volatility to 45 percent? Can you explain this? 32 33 Equity value at 60% volatility million 34 Equity value at 45% volatility million 35 Percent change million 36