# Hema Corp. is an all-equity fi

Hema Corp. is an all-equity firm with a current market value of \$1,350 million (.o., \$1.35 billion) and will be worth \$1,215 million or \$1,890 million in one year. The risk-free interest rate is 5%. Suppose Hema Corp. issues zero-coupon one-year debt with a face value of 51.418 million, and uses the proceeds to pay a special dividend to shareholders. Assuming perfect capital markets, use the binomial model to answer the following: a. What are the payoffs of the firm’s debt in one year? b. What is the value of the debt today? c. What is the yield on the debt? d. Using Modigliani-Miller, what is the value of Hema’s equity before the dividend is paid? What is the value of equity just after the dividend is paid? e. Show that the ex-dividend value of Homa’s equity is consistent with the binomial model. What is the A of the equity, when viewed as a call option on the firm’s assets? a. What are the payoffs of the firm’s debt in one year? The payoffs of the firm’s debt in one year will be either \$1 million (if the firm does well) or \$ 3 million (the firm does poorly and defaults). (Round to the nearest integer.) b. What is the value of the debt today? The value of the debt today is \$million(Round to the nearest integer.) c. What is the yield on the debt? The yield of the debt is % (Round to two decimal places.) d. Using Modigliani-Miller, what is the value of Hema’s equity before the dividend is paid? What is the value of equity just after the dividend is paid? Using Modigliani-Miller, the value of Hema’s equity before the dividend is paid is s million, while the value of equity just after the dividend is paldis s million (Round to the nearest integer) .. Show that the ex-dividend value of Home’s equity is consistent with the binomial model. What is the A of the equity, when viewed as a call option on the firm’s assets? The dolta (A) of the equity is which yolds a value of the equity of smilton (Round delta to four decimal places and equity value to the nearest integer)

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# Hema Corp. is an all equity fi

Hema Corp. is an all equity firm with a current market value of \$1340 million (i.e., \$1.34 billion) and will be worth \$1206 million or \$1876 million in one year. The risk-free interest rate is 5%. Suppose Hema Corp. issues zero-coupon, one-year debt with a face value of \$1407 million and uses the proceeds to pay a special dividend to shareholders. Assuming perfect capital markets, use the binomial model to answer the following:

a. What are the payoffs of the firm’s debt in one year?

b. What is the value today of the debt today?

c. What is the yield on the debt?

d. Using Modigliani-Miller, what is the value of Hema’s equity before the dividend is paid? What is the value of equity just after the dividend is paid?

e. Show that the ex-dividend value of Hema’s equity is consistent with the binomial model. What is the ­ of the equity, when viewed as a call option on the firm’s assets?

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# Hema Corp. is an all-equity fi

Hema Corp. is an all-equity firm with a current market value of \$1,070 million (i.e., \$1.07 billion), and will be worth \$963 million or \$1,498 million in one year. The risk-free interest rate is 5%. Suppose Hema Corp. issues zero-coupon, one-year debt with a face value of \$1,124 million, and uses the proceeds to pay a special dividend to shareholders. Assuming perfect capital markets, use the binomial model to answer the following: a. What are the payoffs of the firm’s debt in one year? b. What is the value of the debt today? c. What is the yield on the debt? d. Using Modigliani-Miller, what is the value of Hema’s equity before the dividend is paid? What is the value of equity just after the dividend is paid? e. Show that the ex-dividend value of Hema’s equity is consistent with the binomial model. What is the A of the equity, when viewed as a call option on the firm’s assets? a. What are the payoffs of the firm’s debt in one year? The payoffs of the firm’s debt in one year will be either million (if the firm does well) or million (the firm does poorly and defaults). (Round to the nearest integer.)

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