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

$313.81

Explanation:

Calculation for the value (in millions) of Wilson Dover's debt if its equity is viewed as an option

Total value = P = $500.0

Debt = X = $200.0

Volatility (σ) = 0.6

rRF = 5%

d1 = 1.910485

N(d1) = 0.9720

d2= 1.310485

N(d2)=0.9050

Using this formula

Vs= PN(d1) − Xe−RFtN(d2)

Let plug in the formula

Vs= $500(0.9720) − $200e−0.05(1)(0.9050)

Vs= $485.98 − $172.17

Vs= $313.81

Therefore the value (in millions) of Wilson Dover's debt if its equity is viewed as an option will be $313.81

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