Suppose that Backwoods Chemical's book balance sheet is: Backwoods Chemical Company (Book Values) Debit Net working capital Net fixed assets $ 400 1,600 $ 1,000 1,000 Credit Debt Total assets $ 2,000 $ 2,000 Equity (net worth) Total value The debt has a one-year maturity and a promised interest payment of 9%. Thus, the promised payment to Backwoods's creditors is $1,090. The market value of the assets is $1,200, and the standard deviation of asset value is 45% per year. The risk-free interest rate is 9%. Calculate the value of Backwoods's debt and equity. Note: Do not round intermediate calculations. Round your answers to the nearest whole number. Value of equity Value of debt
Suppose that Backwoods Chemical's book balance sheet is: Backwoods Chemical Company (Book Values) Debit Net working capital Net fixed assets $ 400 1,600 $ 1,000 1,000 Credit Debt Total assets $ 2,000 $ 2,000 Equity (net worth) Total value The debt has a one-year maturity and a promised interest payment of 9%. Thus, the promised payment to Backwoods's creditors is $1,090. The market value of the assets is $1,200, and the standard deviation of asset value is 45% per year. The risk-free interest rate is 9%. Calculate the value of Backwoods's debt and equity. Note: Do not round intermediate calculations. Round your answers to the nearest whole number. Value of equity Value of debt
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Suppose that Backwoods Chemical's book balance sheet is:
Backwoods Chemical Company (Book Values)
Debit
Net working capital
Net fixed assets
$ 400
1,600
Total assets
$ 2,000
$ 1,000
1,000
$ 2,000
Credit
Debt
Equity (net worth)
Total value
The debt has a one-year maturity and a promised interest payment of 9%. Thus, the promised payment to Backwoods's creditors is
$1,090. The market value of the assets is $1,200, and the standard deviation of asset value is 45% per year. The risk-free interest rate
is 9%. Calculate the value of Backwoods's debt and equity.
Note: Do not round intermediate calculations. Round your answers to the nearest whole number.
Value of equity
Value of debt
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