Question: Sunburn Sunscreen has a zero coupon bond issue outstanding with $20,000 face value that matures in one year. The current market value of the firm's

Sunburn Sunscreen has a zero coupon bond issue outstanding with $20,000 face value that matures in one year. The current market value of the firm's assets is $20,000. The value of the firm's asset is going to be either $23,000 or $18,000 next year. The annual risk-free rate is 5% per year.

What is the market value of the firm's equity and debt?

a.Equity =1714.3, Debt =18285.7

b.Equity =2857.1, Debt =17142.9

c.Equity =1500.0, Debt =18500.0

d.Equity =952.4, Debt =19047.6

e.Equity =0, Debt =20000.0

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