Buckeye Industries Has a Bond Issue with a Face Value

Buckeye Industries has a bond issue with a face value of $20,000 that is coming due in one year. The current value of the firm's assets is $22,200 but these assets are expected to be worth either $18,000 or $26,000 one year from now. The going rate on one-year T-bills is 3.6 percent. What is the current value of the firm's debt?

A) $16,601
B) $18,581
C) $19,407
D) $3,619
E) $2,793

Correct Answer:

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