Hema Corp. is an all-equity firm with a current market value of $1,400 million (i.e., $1.4...

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Hema Corp. is an all-equity firm with a current market value of $1,400 million (i.e., $1.4 billion), and will be worth $1,260 million or $1,960 million in one year. The risk-free interest rate is 5%. Suppose Hema Corp. issues zero-coupon, one-year debt with a face value of $1,470 million, and uses the proceeds to pay a special dividend to shareholders. Suppose that in the event Hema Corp. defaults, $90 million of its value will be lost to bankruptcy costs. Assume there are no other market imperfections. a. What is the present value of these bankruptcy costs, and what is their delta with respect to the firm's assets? b. In this case, what is the value and yield of Hema's debt? c. In this case, what is the value of Hema's equity before the dividend is paid? What is the value of equity just after the dividend is paid? a. What is the present value of these bankruptcy costs, and what is their delta with respect to the firm's assets? The delta of the option is (Round to four decimal places.) The present value of the bankruptcy costs is $ million. (Round to the nearest integer.) b. In this case, what is the value and yield of Hema's debt? The value of the debt is $ million. (Round to the nearest integer.) The yield of the debt is%. (Round to two decimal places.) c. In this case, what is the value of Hema's equity before the dividend is paid? What is the value of equity just after the dividend is paid? The value of Hema's equity before the dividend is paid is $ million. (Round to the nearest integer.) The value of Hema's equity after the dividend is paid is $ million. (Round to the nearest integer.) Hema Corp. is an all-equity firm with a current market value of $1,400 million (i.e., $1.4 billion), and will be worth $1,260 million or $1,960 million in one year. The risk-free interest rate is 5%. Suppose Hema Corp. issues zero-coupon, one-year debt with a face value of $1,470 million, and uses the proceeds to pay a special dividend to shareholders. Suppose that in the event Hema Corp. defaults, $90 million of its value will be lost to bankruptcy costs. Assume there are no other market imperfections. a. What is the present value of these bankruptcy costs, and what is their delta with respect to the firm's assets? b. In this case, what is the value and yield of Hema's debt? c. In this case, what is the value of Hema's equity before the dividend is paid? What is the value of equity just after the dividend is paid? a. What is the present value of these bankruptcy costs, and what is their delta with respect to the firm's assets? The delta of the option is (Round to four decimal places.) The present value of the bankruptcy costs is $ million. (Round to the nearest integer.) b. In this case, what is the value and yield of Hema's debt? The value of the debt is $ million. (Round to the nearest integer.) The yield of the debt is%. (Round to two decimal places.) c. In this case, what is the value of Hema's equity before the dividend is paid? What is the value of equity just after the dividend is paid? The value of Hema's equity before the dividend is paid is $ million. (Round to the nearest integer.) The value of Hema's equity after the dividend is paid is $ million. (Round to the nearest integer.)

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a Present value of bankruptcy costs Let p probability of bankruptcy Passets debt Passets 1470 millio... View the full answer