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Time Value of Money, Liabilities, Exercising Call Options

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1) If you will receive $1,200,000 at the end of two years from today and your required return is 11% what is the value (present) of the this future cash flow to you today?

2) Acme Fish Company, a subsidiary of BGS Co. Inc., recently published their year end balance sheet. The balance sheet showed: Total Assets = $12,500,000; Owners Equity of $1,500,000. What must be their total liabilities?

3) Today you purchased call option that gives you the right to purchase 1000 shares of stock at $12 per share anytime in the next 180 days. The price today is $10. Suppose the stock price 170 days from now is $15 per share and you exercise your option and immediately sell the stock. Ignoring the price of purchasing the option and any transaction costs, what will your dollar gain from the exercising your call option?

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1) If you will receive $1,200,000 at the end of two years from today and your required return is 11% what is the value (present) of the this future cash flow to you today?
Present Value = Future Value / (1+ return)^ number of years
= $1,200,000 / (1+11%)^2 = $973, 946.92

(^ means raised to the power of)
Answer: $973, ...

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