# Higgs Bassoon Corporation Assignment

I D E F G H Higgs Bassoon Corporation is a custom manufacturer of bassoons and other wind instruments. Its current value of operations, which is also its value of debt plus equity, is estimated to be \$200 million. Higgs has a \$110 million face value, zero-coupon debt that is due in 3 years. The risk-free rate is 5%, and the standard deviation of returns for similar companies is 60%. The owners of Higgs Bassoon view their equity investment as an option and would like to know the value of their investment. 10 a. Using the Black-Scholes Option Pricing Model, how much is the equity worth? 11 12 Black-Scholes Option Pricing Model 13 Total Value of Firm 200000000.00 this is the current value of operations 14 Face Value of Debt 110000000.00 15 Risk-Free rate 5% 16 Maturity of debt (years) 3.00 17 Standard Dev. 60.00 this is sigma–also known as volatility 18 d use the formula from the text 19 d2 use the formula from the text 20 N(d) use the Normsdist function in the function wizard 21 N(d) 22 Call Price = Equity Value million 23 24 b. How much is the debt worth today?

What is its yield? 25 million 26 Debt value = Total Value – Equity Value = 27 Debt yield = 28 н I F G 28 29 c. How much would the equity value and the yield on the debt change if Fethe&#39;s 30 management were able to use risk management techniques to reduce its volatility to 31 45 percent? Can you explain this? 32 33 Equity value at 60% volatility million 34 Equity value at 45% volatility million 35 Percent change million 36. Get Accounting homework help today

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