Trumbull, Inc $\sigma$ ) of Trumbull's Total Value Is 0

question 18

Multiple Choice

Trumbull, Inc., has total value (debt plus equity) of $500 million and $200 million face value of 1-year zero coupon debt. The volatility ( $\sigma$ ) of Trumbull's total value is 0.60, and the risk-free rate is 5%. Assume that N(d1) = 0.9720 and N(d2) = 0.9050.
-What is the value (in millions) of Trumbull's debt if its equity is viewed as an option?

• A) $167.57
• B) $186.19
• C) $204.81
• D) $225.29
• E) $247.82

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Definitions:

Net Working Capital

The discrepancy between a firm's immediate assets and liabilities, reflecting its short-term fiscal well-being and operational effectiveness.

Depreciation

The systematic allocation of an asset's cost over its useful life to account for wear and tear, obsolescence, or decline in value.

Intangible Asset

Assets that are not physical in nature, such as patents, copyrights, trademarks, and goodwill.

Tangible Asset

A physical asset that can be touched and seen, such as buildings, machinery, or inventory.