Scenario: You own a call option on Intuit stock with a strike price of $40. The option will expire in exactly three months time. Questions: a. If the stock is trading at $55 in three months, what will be the payoff of the call? b. If the stock is trading at $35 in three months, what will be the payoff of the call? c. Draw
A Corporation is considering a capital project for the coming year. The project has an internal rate of return of 17 percent. If the firm has the following target capital structure and costs, what should their decision be and why? Source of Capital Proportion After-tax cost ______________________________
A new parent wants to have $80,000 in a college savings account in 18 years. Although it's difficult to predict what the APR will be over 18 years, we can get a sense of how much the parent should save each month using various assumptions. Calculate the monthly savings needed if the money is invested in an account with monthly
The Shelton Corporation has some excess cash that it would like to invest in marketable securities for a long term hold. Its vice president of finance is considering three investments. (Shelton Corporation is in a 35percent tax bracket and the tax rate on dividends is 15 percent). Which one should he select based on after-tax
See attached problem. (Chapter 13) Monohan Machinery specializes in developing weed-harvesting equipment that is used to clear small lakes of weeds. George Monohan, president of Monohan Machinery, is convinced that harvesting weeds is far better than using chemicals to kill weeds. Chemicals cause pollution, and the weeds see
1. The amount of money borrowed or invested is called the maturity value. () True False 2. When solving a simple interest problem, the rate should be written as a decimal number. () True False 3. 8% for 45 days is equal to 0.01. () True False 4. Bank loans and
A company pays a dividend today of $4, and this dividend is expected to grow each year by 4%. The discount rate is 10%. What is the market price of the stock? A firm issued a preferred stock which matures in 30 years and carries a maturity value of $45. The dividend is $4 per year over the 30 year period. The current mark
1. The pay period intervals biweekly and semimonthly are similar in that the same number of pay periods occur in either method. True False 2. A salaried employee is paid the same amount of money even though the hours worked may vary from pay period to pay period. True False 3. Carrie Blue earns a salary of $26,480.00
Assume that you have a short-term investment horizon (less 1 year). You are considering two investments: a 1-year Treasury security a 20-year treasury security. Which of the two investments would you view as being riskier? Explain
If interest rates rise after a bond issue, what will happen to the bond's price and YTM? Does the time to maturity affect the extent to which interest rate changes affect the bond's price? (Again, an example might help you answer this question.)
The values of outstanding bonds change whenever the going rate of interest changes. In general, short-term interest rates are more volatile than long-term interest rates. Therefore, short-term bond prices are more sensitive to interest rate changes than are long-term bond prices. Is that statement true or false? Explain. (Hint:
1. You know that a probability distribution has a mean of 23.20 and a variance of 2.56. You try four different sampling techniques and get the follow results. Technique Mean A 20.7 B 19.5 C 26.0 D 25.7 At the 95 percent confidence level, wh
Please see the attachment.
Smith has been interested in music since he was old enough to sit at the piano. He literally grew up with music, and he used his talent to earn his way through college. Smith has grown tired of his job at a large music house in Atlanta and is seriously considering moving back to his hometown to open his own small music shop. In
Case Problem: Transformer Replacement at Mountain States Electric Service Mountain States Electric Service is an electrical utility company serving several states in the Rocky Mountains region. It is considering replacing some of its equipment at a generating substation and is attempting to decide
A bond that has a $1,000 par value (face value) and a contract or coupon interest rate of 11 percent. A new issue would have a floatation cost of 5 percent of the $1,125 market value. The bonds mature in 10 years. The firm's average tax rate in 30 percent and its marginal tax rate is 34 percent.
Part one: An appliance manufacturer produces two models of microwave ovens: H and W. Both models require fabrication and assembly work: each H uses four hours of fabrication and two hours of assembly, and each W uses two hours of manufacturing and six hours of assembly. There are 600 fabrication hours and 480 hours of assembly
Shantel and Kwamie are planning to buy their first home. Although they are excited about the prospect of being homeowners, they are also a little frightened. A mortgage payment for the next 30 years sounds like a huge commitment. They visited a few new developments and scanned the real estate listings of preowned homes, but they
See the attached file. Problem 16-8. Business and Financial Risk Here are the estimated ROE distributions for Firms A, B, and C: PROBABILITY ________________________________________ 0.1 0.2 0.4 0.2 0.1 ________________________________________ Firm A: 0.0% 5.0% 10.0% 15.0% 20.0% Firm B:
The members of a flying club plan to share equally the cost of a $200,000 airplane. The members want to find five more people to join the club so that the cost per person will decrease by $2000. How many members are currently in the club?
The net income of Simon and Hobbs, a department store, decreased sharply during 2000. Carol Simon, owner of the store, anticipates the need for a bank loan in 2001. Late in 2000, Simon instructs the store's accountant to record a $10,000 sale of furniture to the Simon family, even though the goods will not be shipped from the ma
Have you seen any graphs in a meeting at work or in a business situation that you thought were useful? Do you think graphs are useful for describing functions, or do they have the potential to cause even more confusion?
One real estate sales technique is to encourage customers or clients to buy today because the value of the property will probably increases during the next few years. "Buy this lot today for $28,000. In two years, I will project it will sell for $32,500. "The buyer has a CD worth $30,000 now, which earns 4% compounded annually a
A projectile is fired with initial velocity v (LT^-1) at an angle θ (M^0L^0T^0) with the horizon. You may expect that the gravity acceleration g (LT^-2) affects R (L) . a) Use dimensional analysis to understand the dependence of R on v, g, and θ . b) Describe approximately the influence of θ on R .
Company x's stock currently sells for $20.00 a share. It just paid a dividend of $1.00 a share. The dividend is expected to grow at a constant rate of 6% a year. What stock price is expected 1 year from now? What is the required rate of return?
At the end 2005, the Long Life Light Bulb Company announced had produced a gross profit of $1 million. The company has also established that over the course of this year it has incurred $345,000 in operating expenses and $125,000 interest expenses. The company is subject to a 30 percent tax rate and has declared $57,000 total
(TCO E) Josh sold a piece of business equipment that had an adjusted basis to him of $50,000. In return for the equipment, Josh received $80,000 cash and a painting with a fair market value of $20,000 from the buyer. The buyer also assumed Josh's $25,000 loan on the equipment. Josh paid $5,000 in selling expenses. What is the am
(TCO H) Al and Amy file a joint return for the 2007 tax year. Their adjusted gross income is $80,000. They had net investment income of $9,000. In 2007, they had the following interest expenses: Personal credit card interest $4,000; Home mortgage interest $8,000; and Investment interest (on loans used to buy stocks) $10,000.
Co. A has a debt-to-firm-value ratio of 30% and an equity-to-firm-value ratio of 70%. The required rate of return on equity of Co. A is 15% while the long-term borrowing rate is 10%. Co. A's marginal tax rate is the statutory rate of 40%. Calculate its after-tax weighted average cost of capital. See the attached file.
Unruh Co. is being sued for illness caused to local residents as a result of negligence on the company's part in permitting the local residents to be exposed to highly toxic chemicals from its plant. Unruh's lawyer states that it is probable that Unruh will lose the suit and be found liable for a judgment costing Unruh anywhere