Sunburn Sunscreen has a zero coupon bond issue outstanding with a $14,000 face value that matures in one year.

Chapter 25 for Credit value: 25.00 points Sunburn Sunscreen has a zero coupon bond issue outstanding with a $14,000 face value that matures in one year. The current market value of the firm's assets is $15,300. The standard deviation of the return on the firm's assets is 34 percent per year, and the annual risk-free rate is 5 percent per year, compounded continuously. The firm is considering two mutually exclusive investments. Project A has an NPV of $2,900 and Project B has an NPV of $3,800. As the result of taking Project A, the standard deviation of the retum on the firm's assets will increase to 47 percent per year. If Project B is taken, the standard deviation will fall to 20 percent per year a-1 What is the value of the firm's equity and debt if Project A is undertaken? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) Market value Equity Debt a-2 What is the value of the firm's equity and debt if Project B is undertaken? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) Market value Equity Debt b. Wch project would the stockholders prefer? O Project B O Project A C. Suppose the stockholders and bondholders are in fact the same group of investors. Would this affect your answer to (b)? O Yes O No