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    Call option on Bedrock Boulders stock has a market price of $7

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    A call option on Bedrock Boulders stock has a market price of $7. The stock sells for $30 a share, and the option has an exercise price of $25 a share. What is the exercise value of the call option? b. What is the options time value?

    Use the following income statements and balance sheets to calculate Garnet Inc.'s free cash flow for 2011.

    Garnet Inc.
    Income Statement 2011 2010
    Net sales $530.00 $500.00
    Costs (except depreciation) 400 380
    Depreciation 30 25
    Total operating costs $430.00 $405.00
    Earnings before interest and taxes (EBIT) 100 95
    Less interest 23 21
    Earnings before taxes $77.00 $74.00
    Taxes (40%) 30.8 29.6
    Net income 46.2 44.4

    Balance Sheet 2011 2010
    Assets
    Cash $28.00 $27.00
    Marketable securities 69 66
    Accounts receivable 84 80
    Inventories 112 106
    Total current assets $293.00 $279.00
    Net plant and equipment 281 265
    Total assets $574.00 $544.00

    Liabilities and Equity
    Accounts payable $56.00 $52.00
    Notes payable 138 130
    Accruals 28 28
    Total current liabilities $222.00 $210.00
    Long-term bonds 173 164
    Common stock 100 100
    Retained earnings 79 70
    Common equity $179.00 $170.00
    Total liabilities and equity $574.00 $544.00

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    Solution Preview

    Hello

    Please find the solutions attached.

    8-1
    A call option on Bedrock Boulders stock has a market price of $7. The stock sells for $30 a share, and the option has an exercise price of $25 a share. What is the exercise value of the call option? b. What is the options time value?

    Exercise value = Current stock price - strike price
    = $30 - $25 = $5.

    Time value = Option price - Exercise value
    = $7 - $5 = $2.

    13-1

    Use the ...

    Solution Summary

    The call options on Bedrock Boulders stock has a market price is determined.

    $2.19

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