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Unformatted text preview: ) = 0.8303 and V = $2.1964 million. This leaves debt value of $4 million - $2.1964 million = $1.8036 million. The yield on this debt is calculated as Price = (Face Value)/(1+Yield) N so that Yield = [Face Value/Price] 1/N 1.0 = [2.0/1.8036] 1.0 = 10.89% In this case, the value of the debt must be $1.8036 million, and it is yielding 10.89%. The value of the equity is $2.1964 million....
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- Spring '08