Davistown Enterprises Has Assets Currently Worth $1,600

question 95

Multiple Choice

Davistown Enterprises has assets currently worth $1,600. In one year the assets will be worth either $1,400 or $1,900. The company has a zero coupon bond issue outstanding with a total face value of $1,200. The bonds are due in one year. The risk-free rate of return is 3%. What is the value of the equity in Davistown Enterprises?

• A) $0
• B) $234.95
• C) $400.00
• D) $434.95
• E) $734.95

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