Question: Sunburn Sunscreen has a zero coupon bond issue outstanding with a $ 1 0 , 0 0 0 face value that matures in one year.

Sunburn Sunscreen has a zero coupon bond issue outstanding with a $10,000 face value that matures in one year. The current market value of the firms assets is $10,700. The standard deviation of the return on the firms assets is 43 percent per year, and the annual risk-free rate is 6 percent per year, compounded continuously. The firm is considering two mutually exclusive investments. Project A has an NPV of $2,400, and Project B has an NPV of $2,800. As the result of taking Project A, the standard deviation of the return on the firms assets will increase to 54 percent per year. If Project B is taken, the standard deviation will fall to 26 percent per year.
a-1. What is the value of the firms equity and debt if Project A is undertaken?
Note: Do not round intermediate calculations and round your answers to 2 decimal places, e.g.,32.16.
a-2. What is the value of the firms equity and debt if Project B is undertaken?
Note: Do not round intermediate calculations and round your answers to 2 decimal places, e.g.,32.16.

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