Q: Global Wind Power has a zero coupon bond outstanding with a face value of $2 million and maturity of one year. the current market value of the firm's asset is $2.5 million. The standard deviation of the return on the firm's assets is 40% per year. the risk-free rate is 5% per year, compounded continuously. Global wind power is considering investing in one of two wind turbines. Investing in turbine A will have an NPV of $1 million and increase the standard deviation of the return on assets to 55%. In contrast, investing in Turbine B will have an NPV of $1.5 million and lower the standard deviation to 30%

a) Using the Black-Scholes model, calculate the market value of Wind Power's debt and equity before investing in either Turbine A or B.

b) Calculate the value of Wind Power equity if the firm invests in Turbine A.

plz show processes and correct answer to the above answer.

Thank you.

Question 5 20 marks Global Wind Power has a zero coupon bond outstanding with a face value of $2 million and maturity of one year. The current market value of the firm's asset is $2.5 million. The standard deviation of the return on the firm's asset is 40% per year. The risk-free rate is 5% per year, compounded continuously. Global Wind Power is considering investing in one of two wind turbines. Investing in Turbine A will have an NPV of $ 1 million and increase the standard deviation of the return on assets to 55%. In contrast, investing in Turbine B will have an NPV of $1.5 million and lower the standard deviation to 30%. Required: a) b) Using the Black-Scholes Model, calculate the market value of Wind Power's debt and equity before investing in either Turbine A or B. Calculate the value of Wind Power equity if the firm invests in Turbine A. (10 marks) (10 marks) Question 5 20 marks Global Wind Power has a zero coupon bond outstanding with a face value of $2 million and maturity of one year. The current market value of the firm's asset is $2.5 million. The standard deviation of the return on the firm's asset is 40% per year. The risk-free rate is 5% per year, compounded continuously. Global Wind Power is considering investing in one of two wind turbines. Investing in Turbine A will have an NPV of $ 1 million and increase the standard deviation of the return on assets to 55%. In contrast, investing in Turbine B will have an NPV of $1.5 million and lower the standard deviation to 30%. Required: a) b) Using the Black-Scholes Model, calculate the market value of Wind Power's debt and equity before investing in either Turbine A or B. Calculate the value of Wind Power equity if the firm invests in Turbine A. (10 marks) (10 marks)