The Current Market Value of the Assets of Levered Firm

question 1

Multiple Choice

The current market value of the assets of levered firm ABC, Inc.is $100 million.The annual standard deviation of returns on the assets is 30%.The firm's capital structure consists of equity and pure discount debt for which payment of $80 million is due in 5 years.The risk-free rate is 5%.Using the Black-Scholes Option Pricing Model to calculate the value of the firm's debt.

• A)$44
• B)$55
• C)$66
• D)$77

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