A non-dividend-paying stock currently sells for $100 per share. The risk-free rate is 8% per annum and the volatility is 13.48% per annum. Consider a European call option on the stock with a strike price of $100 and the time to maturity is one year. a. Calculate u, d, and p for a two-step tree. b. Value the option using a two-step tree. Verify your results with the Option Calculator Spreadsheet.
In: Finance
A project has annual cash flows of $7,500 for the next 10 years and then $11,000 each year for the following 10 years. The IRR of this 20-year project is 11.64%. If the firm's WACC is 11%, what is the project's NPV? Do not round intermediate calculations. Round your answer to the nearest cent.
In: Finance
Shanken Corp. issued a 20-year, 4.2 percent semiannual bond 3 years ago. The bond currently sells for 89 percent of its face value. The company's tax rate is 22 percent. a. What is the pretax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the aftertax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places.
In: Finance
A store has 5 years remaining on its lease in a mall. Rent is $2,000 per month, 60 payments remain, and the next payment is due in 1 month. The mall's owner plans to sell the property in a year and wants rent at that time to be high so that the property will appear more valuable. Therefore, the store has been offered a "great deal" (owner's words) on a new 5-year lease. The new lease calls for no rent for 9 months, then payments of $2,750 per month for the next 51 months. The lease cannot be broken, and the store's WACC is 12% (or 1% per month).
Should the new lease be accepted? (Hint: Be sure to use 1% per month.)
If the store owner decided to bargain with the mall's owner over the new lease payment, what new lease payment would make the store owner indifferent between the new and old leases? (Hint: Find FV of the old lease's original cost at t = 9; then treat this as the PV of a 51-period annuity whose payments represent the rent during months 10 to 60.) Do not round intermediate calculations. Round your answer to the nearest cent. $
The store owner is not sure of the 12% WACC—it could be higher or lower. At what nominal WACC would the store owner be indifferent between the two leases? (Hint: Calculate the differences between the two payment streams; then find its IRR.) Do not round intermediate calculations. Round your answer to two decimal places.
In: Finance
Continental Power (CP) builds and operates renewable energy generation facilities across Europe. It is considering expanding its business into a number of developing countries. This expansion would require large capital investments which CP would prefer to finance using debt. CP’s corporate finance advisors believe that the company could not issue additional debt without significantly impacting its credit rating. These projects are generally of a finite life and require little ongoing capital investment once operating. CP is concerned about the impact of political risk in the proposed locations. CP’s advisors have suggested financing, developing and operating these projects using project finance structures rather than corporate finance (as has been the practice to date).
Required:
(i) Explain how project financing and corporate financing structures differ.
(ii) Outline how a project financing structure could be developed for the overseas projects. Address the following elements of the structure:
- Corporate and Legal Structure
- Capital Structure
- Distribution of Project Cash-Flows
- Risk Management
- Lender Recourse to CP for Project Debt
In: Finance
Assume two identical (hypothetical) company's, CAP inc. and NOW inc. (NOW), start with 1,000 cash and 1,000 common stock. Each year the companies recognize total revenues of 1500 cash and make cash expenditures of 500 (excluding an equipment purchase). At the beginning of operations, each company pays 900 to purchase equipment. CAP estimates the equipment will have a useful life of three years and an estimated salvage value of 0 at the end of the three years. Now estimates a much shorter useful life and expenses the equipment immediately. The companies have other assets and make no other asset purchases during the three-year period. Assume the companies pay no dividends, earn zero interest on cash balances, have a tax rate of 10 percent, and use the same accounting method for financial and tax purposes.
1. which company reports higher net income during the first year, second year, and third year?
2.Which company reports higher cash from operations for each of the three years?
if anything formulas to know how to solve it.
In: Finance
A stock is currently priced at $54.00. Every 3 months the price will go up by 14% or down by 15%. The risk free rate is 5.9% per annum with continuous compounding.
Consider a portfolio made of the following: a bond which pays $26.00 in 9 months; 3 European straddle options each with strike $56.00 expiring in 9 months.
Using the binomial tree model, compute the price of this portfolio.
In: Finance
Broussard Skateboard's sales are expected to increase by 20%
from $8.0 million in 2016 to $9.60 million in 2017. Its assets
totaled $4 million at the end of 2016. Broussard is already at full
capacity, so its assets must grow at the same rate as projected
sales. At the end of 2016, current liabilities were $1.4 million,
consisting of $450,000 of accounts payable, $500,000 of notes
payable, and $450,000 of accruals. The after-tax profit margin is
forecasted to be 6%. Assume that the company pays no dividends.
Under these assumptions, what would be the additional funds needed
for the coming year? Do not round intermediate calculations. Round
your answer to the nearest dollar.
$
Why is this AFN different from the one when the company pays
dividends?
I. Under this scenario the company would have a
higher level of retained earnings which would increase the amount
of additional funds needed.
II. Under this scenario the company would have a
higher level of retained earnings but this would have no effect on
the amount of additional funds needed.
III. Under this scenario the company would have a
lower level of retained earnings which would reduce the amount of
additional funds needed.
IV. Under this scenario the company would have a
lower level of retained earnings but this would have no effect on
the amount of additional funds needed.
V. Under this scenario the company would have a
higher level of retained earnings which would reduce the amount of
additional funds needed.
In: Finance
What are the success factors in the Scotiabank-Kabbage partnership?
In: Finance
You enetered into a currency swap that has 4.25 years left until termination. You receive 4.3% on $10 million and pay 3.8% on 9.5 million euros each settlement date. Current exchange rate is $1.10/1 Euros. The interest rates are listed below for the USD and EUR all quoted per annum with continuous compounding. What is the value of your swap today?
YEAR USD EUR
.25 3% 3.5%
1.25 3.5% 4%
2.25 4% 4%
3.25 4.25% 4.5%
4.25 4.25% 4.75%
In: Finance
Does the industrialization of America at the end of the nineteenth and beginning of the twentieth century hold any lessons for us today?
In: Finance
|
McGilla Golf is evaluating a new line of golf clubs. The clubs will sell for $1,050 per set and have a variable cost of $475 per set. The company has spent $170,000 for a marketing study that determined the company will sell 53,000 sets per year for seven years. The marketing study also determined that the company will lose sales of 10,000 sets of its high-priced clubs. The high-priced clubs sell at $1,550 and have variable costs of $680. The company also will increase sales of its cheap clubs by 12,600 sets. The cheap clubs sell for $475 and have variable costs of $205 per set. The fixed costs each year will be $9,900,000. The company has also spent $1,300,000 on research and development for the new clubs. The plant and equipment required will cost $32,900,000 and will be depreciated on a straight-line basis to a zero salvage value. The new clubs also will require an increase in net working capital of $2,680,000 that will be returned at the end of the project. The tax rate is 22 percent and the cost of capital is 12 percent. |
|
Suppose you feel that the values are accurate to within only ±10 percent. What are the best-case and worst-case NPVs? (Hint: The price and variable costs for the two existing sets of clubs are known with certainty; only the sales gained or lost are uncertain.) (A negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) |
In: Finance
BCA stock price is currently $70. The risk free interest rate is 5% per annum with continuous compounding. Assume BCA's volatility is 25%. What is the difference in price of a of a 6-month American put option with a strike price of $75 and an identical European put option using 5--step binomial trees to calculate the price index today for both options? What is the new Black-Scholes price of this European option? LOOKING FOR ANSWER IN EXCEL FORMAT AND EXPLANATION PLEASE :)
In: Finance
In the 1990s, a majority of post-socialist countries adopted fixed exchange rate policies. How would you describe a possible reasoning behind it? Why most of those countries eventually cancelled those polisies.
In: Finance
17.
Simon recently received a credit card with an 18% nominal interest rate. With the card, he purchased an Apple iPhone 7 for $366.46. The minimum payment on the card is only $20 per month.
If Simon makes the minimum monthly payment and makes no other charges, how many months will it be before he pays off the card? Do not round intermediate calculations. Round your answer to the nearest whole number.
month(s)
If Simon makes monthly payments of $65, how many months will it be before he pays off the debt? Do not round intermediate calculations. Round your answer to the nearest whole number.
month(s)
How much more in total payments will Simon make under the $20-a-month plan than under the $65-a-month plan. Do not round intermediate calculations. Round your answer to the nearest cent.
$
In: Finance