Problemdigital organics has 114 million outstanding shares, Ask an Expert

Accounting

Problem:

Digital Organics has 11.4 million outstanding shares trading at $39 per share. It also has a large amount of debt outstanding, all coming due in one year. The debt pays interest at 6%. It has a par (face) value of $336 million, but is trading at a market value of only $294 million. The one-year risk-free interest rate is 4%.

Required:

Question 1: Complete the put-call parity formula for Digital Organics' stock, debt, and assets.

Question 2: What is the value of the company's option to default on its debt?

Note: Please show the work not just the answer.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M91164462

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