Question: show how to do calculation for section d. I need to see the excel formula Higgs Bassoon Corporation is a custom manufacturer of bassoons and

show how to do calculation for section d. I need to see the excel formula

show how to do calculation for section d. I need to seethe excel formula Higgs Bassoon Corporation is a custom manufacturer of bassoons

Higgs Bassoon Corporation is a custom manufacturer of bassoons and other wind instruments. Its current value of operations which is also its value of debt plus equity, is estimated to be $200 million. Higgs has $110 million face value, zero coupon debt that is due in 3 years. The risk-free rate is 5%, and the 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. a. Using the Black-Scholes Option Pricing Model, how much is the equity worth? Black-Scholes Option Pricing Model Total Value of Firm Face Value of Debt Risk Free rate Maturity of debt (years) Standard Dev 200,000,000 this is the current value of operations 110,000,000 0.05 3 0.6 this is sigma--also known as volatility d1 d2 N(di) N(d2) Call Price Equity Value 1.2392 use the formula from the text 0.2000 use the formula from the text 0.8924 use the Normsdist function in the function wizard 0.5793 $ 123,636,102.69 million b. How much is the debt worth today? What is its yield? Debt valueTotal Value Equity Value- Debt yield- $76,363,897.31 million 12.937% c. How much would the equity value and the yield on the debt change if Fethe's management were able to use risk management techniques to reduce its volatility to 45 percent? Can you explain this? Equity value at 60% volatility Equity value at 45% volatility Percent change 123,636,103 million 114,529,025 million 7.4% million d. Graph the cost of debt versus the face value of debt for values of the face value from $0.5 to $8 million. Cost of Debt Face Value of Debt hint: use a data table 10 20 30 40 50 60 70 80 90 100 110 120 130 140 150 160 Cost of De 120.00% 100 .00% 80.00% 60.00% 40.00% 20.00% 0.00% 10 20 30 4050 60 70 80 Higgs Bassoon Corporation is a custom manufacturer of bassoons and other wind instruments. Its current value of operations which is also its value of debt plus equity, is estimated to be $200 million. Higgs has $110 million face value, zero coupon debt that is due in 3 years. The risk-free rate is 5%, and the 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. a. Using the Black-Scholes Option Pricing Model, how much is the equity worth? Black-Scholes Option Pricing Model Total Value of Firm Face Value of Debt Risk Free rate Maturity of debt (years) Standard Dev 200,000,000 this is the current value of operations 110,000,000 0.05 3 0.6 this is sigma--also known as volatility d1 d2 N(di) N(d2) Call Price Equity Value 1.2392 use the formula from the text 0.2000 use the formula from the text 0.8924 use the Normsdist function in the function wizard 0.5793 $ 123,636,102.69 million b. How much is the debt worth today? What is its yield? Debt valueTotal Value Equity Value- Debt yield- $76,363,897.31 million 12.937% c. How much would the equity value and the yield on the debt change if Fethe's management were able to use risk management techniques to reduce its volatility to 45 percent? Can you explain this? Equity value at 60% volatility Equity value at 45% volatility Percent change 123,636,103 million 114,529,025 million 7.4% million d. Graph the cost of debt versus the face value of debt for values of the face value from $0.5 to $8 million. Cost of Debt Face Value of Debt hint: use a data table 10 20 30 40 50 60 70 80 90 100 110 120 130 140 150 160 Cost of De 120.00% 100 .00% 80.00% 60.00% 40.00% 20.00% 0.00% 10 20 30 4050 60 70 80

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