Question: Buckeye Industries has a bond issue with a face value of $1,000 that is coming due in one year. The value of Buckeye's assets is currently $1,220. Urban Meyer, the CEO, believes that the assets in the firm will be worth either $930 or $1,450 in a year. The going rate on one-year T-bills is 5 percent.
a-1 What is the value of the company's equity? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Value of equity $
a-2 What is the value of the debt? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Value of debt $
Suppose the company can reconfigure its existing assets in such a way that the value in a year will be $930 or $1,730.
b. If the current value of the assets is unchanged, what is the new value of the company's equity? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Value of equity $