Problems
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Skill-Building Problems.
1. The Value of the Firm (V) is $780 million, the Face Value of the Debt (B) is $410 million, the
time to maturity of the debt (t) is 1.37 years, the riskfree rate ( RF k ) is 3.2%, and the standard
deviation of the return on the firm’s assets () is 43.0%. Using both methods of debt and equity
valuation, what the firm’s Equity Value (E) and Risky Debt Value (D)? Do both methods produce
the same result?
2. Determine what impact an increase in the Firm Asset Standard Deviation has on the firm’s Equity
Value and Risky Debt Value.
Live In-class Problems.
3. Given the partial Two Methods spreadsheet DevaltwZ.xls, do step 3 Method One and 4 Method
Two.
4. Given the partial Impact of Risk spreadsheet DevalimZ.xls, complete step 2 Create A List of
Input Values and Add Two More Output Formulas and 3 Data Table.
Skill-Building Problems.
1. The Value of the Firm (V) is $780 million, the Face Value of the Debt (B) is $410 million, the
time to maturity of the debt (t) is 1.37 years, the riskfree rate ( RF k ) is 3.2%, and the standard
deviation of the return on the firm’s assets () is 43.0%. Using both methods of debt and equity
valuation, what the firm’s Equity Value (E) and Risky Debt Value (D)? Do both methods produce
the same result?
2. Determine what impact an increase in the Firm Asset Standard Deviation has on the firm’s Equity
Value and Risky Debt Value.
Live In-class Problems.
3. Given the partial Two Methods spreadsheet DevaltwZ.xls, do step 3 Method One and 4 Method
Two.
4. Given the partial Impact of Risk spreadsheet DevalimZ.xls, complete step 2 Create A List of
Input Values and Add Two More Output Formulas and 3 Data Table.