Suppose you purchase one WM May strike=102 call contract at $5 and write one WM May strike=107 call at $2. If the price of WM stock is $105 at expiration, your profit would be _____.

The three call options issued by Tesla Inc are listed below. Suppose that the current price of Tesla is $247.89.

Which option has the highest time value? Discuss the determinants of the time value based on the moneyness and time to expiration.

Beasley Ball Bearings paid a $4 dividend last year. The dividend is expected to grow at a constant rate of 6 percent over the next four years. The required rate of return is 20 percent (this will also serve as the discount rate in this problem). Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods.

a. Compute the anticipated value of the dividends for the next four years. (Do not round intermediate calculations. Round your final answers to 2 decimal places.)

b. Calculate the present value of each of the anticipated dividends at a discount rate of 20 percent. (Do not round intermediate calculations. Round your final answers to 2 decimal places.)

c. Compute the price of the stock at the end of the fourth year (P4). (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

d. Calculate the present value of the year 4 stock price at a discount rate of 20 percent. (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

e. Compute the current value of the stock. (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

f. Use the formula given below to show that it will provide approximately the same answer as part e. (Do not round intermediate calculations. Round your final answer to 2 decimal places.) P0 = D1 Ke − g g. If current EPS were equal to $5.70 and the P/E ratio is 20% higher than the industry average of 5, what would the stock price be? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

h. By what dollar amount is the stock price in part g different from the stock price in part f? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

i. With regard to the stock price in part f, indicate which direction it would move if: This is the last question in the assignment. To submit, use Alt + S. To access other questions, proceed to the question map button.Next Visit question mapQuestion 19 of 19 Total19 of 19 Prev

Noting that there has been an increasing interest in organic foodstuffs with increasing affluence, Mr Tommy Tan is considering starting an organic food retail business in Singapore. He targets to have 8 retail outlets island-wide by end 2021. To maintain its target capital structure, the firm estimates that it will need to borrow $10 million to finance this growth. As the firm is tight on cash, it prefers to repay the loan in full only at the end of 10 years and only wants to service the interest on an annual basis.

The firm has approached several banks in the Singapore and 2 banks have signalled interest to be its main financier. JuneBank proposes an annual interest rate of 6.9% and the underwriting spread is 2%. BHR Bank offers the loan at an annual interest rate of 6.5% and the underwriting spread is 2.9%.

1. (a) What is the effective cost of borrowing from JuneBank?

2. (b) What is the effective cost of borrowing from BHR Bank?

(c) Using the estimations in (a) and (b), determine the bank that the firm should borrow from

2.the stock of Business Adventures sells for $70 a share. Its likely dividend payout and end-of-year price depend on the state of the economy by the end of the year as follows:

Dividend Stock Price

Boom $2.50 $78

Normal economy 1.50 72

Recession 0.50 66

a. Calculate the expected holding-period return and standard deviation of the holding-period return. All three scenarios are equally likely. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

b. Calculate the expected return and standard deviation of a portfolio invested half in Business Adventures and half in Treasury bills. The return on bills is 3%. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Your friend is looking for investors in a risky business venture. To convince you to participate, she is offering you a 18% rate of return in your investment. How much should you be willing to invest your friend s company, if she believes that she will be able to pay you the following amounts: $3000 at the end of the first year, $4000 at the end of the second year, and $5000 at the end of years 3, 4, and 5.

Merger Analysis

TransWorld Communications Inc., a large telecommunications company, is evaluating the possible acquisition of Georgia Cable Company (GCC), a regional cable company. TransWorld's analysts project the following post-merger data for GCC (in thousand of dollars):

If the acquisition is made, it will occur on January 1, 2015. All cash flows shown in the income statements are assumed to occur at the end of the year. GCC currently has a capital structure of 40% debt, but Trans World would increase that to 50% if the acquisition were made. GCC, if independent, would pay taxes at 20%; but its income would be taxed at 35% if it were consolidated. GCC's current market-determined beta is 1.50, and its investment bankers think that its beta will rise to 1.614 if the debt ratio were increased to 50%. The cost of goods sold is expected to be 80% of sales, but could vary somewhat. Depreciation-generated funds would be used to replace worn-out equipment, so they would not be available to TransWorld's shareholders. The risk-free rate is 8%, and the market risk premium is 4%. Do not round intermediate calculations.

1. What is the appropriate discount rate for valuing the acquisition?
   % (to 2 decimals)

2. What is the continuing value?
   $ thousand (to 1 decimal)

3. What is the value of GCC to TransWorld?
   $ thousand (to 1 decimal)

. Use the following information to calculate your company's expected return State Probability Return Boom 20% 0.34 Normal 60% 0.10 Recession 20% -0.16 Round to two decimal places ANSWER:

1. What is the historical role of investment bankers ? Has this role changed ? Why or why not ?

2.  Evaluate the industry performance of commercial banks and describe their future challenges.

NPV

Your division is considering two projects with the following cash flows (in millions):

1. What are the projects' NPVs assuming the WACC is 5%? Round your answer to two decimal places. Do not round your intermediate calculations. Enter your answer in millions. For example, an answer of $10,550,000 should be entered as 10.55. Negative value should be indicated by a minus sign.
   Project A    $_____ million
   Project B    $_____ million

   What are the projects' NPVs assuming the WACC is 10%? Round your answer to two decimal places. Do not round your intermediate calculations. Enter your answer in millions. For example, an answer of $10,550,000 should be entered as 10.55. Negative value should be indicated by a minus sign.
   Project A    $_____million
   Project B    $_____million

   What are the projects' NPVs assuming the WACC is 15%? Round your answer to two decimal places. Do not round your intermediate calculations. Enter your answer in millions. For example, an answer of $10,550,000 should be entered as 10.55. Negative value should be indicated by a minus sign.
   Project A    $_____million
   Project B    $_____million

2. What are the projects' IRRs assuming the WACC is 5%? Round your answer to two decimal places. Do not round your intermediate calculations.
   Project A =_____ %
   Project B =_____ %

   What are the projects' IRRs assuming the WACC is 10%? Round your answer to two decimal places. Do not round your intermediate calculations.
   Project A=_____ %
   Project B=_____ %

   What are the projects' IRRs assuming the WACC is 15%? Round your answer to two decimal places. Do not round your intermediate calculations.
   Project A=_____ %
   Project B=_____ %

3. If the WACC was 5% and A and B were mutually exclusive, which project would you choose? (Hint: The crossover rate is 1.66%.)
   =PROJECT A, B OR NEITHER?

   If the WACC was 10% and A and B were mutually exclusive, which project would you choose? (Hint: The crossover rate is 1.66%.)
   =PROJECT A, B OR NEITHER?

4. If the WACC was 15% and A and B were mutually exclusive, which project would you choose? (Hint: The crossover rate is 1.66%.)
   ==PROJECT A, B OR NEITHER?

You have $100,000 to invest in either Stock D, Stock F, or a risk-free asset. You must invest all of your money. Your goal is to create a portfolio that has an expected return of 11.4 percent. If D has an expected return of 13.6 percent, F has an expected return of 9.7 percent, the risk-free rate is 3.8 percent, and you invest $50,000 in Stock D, how much will you invest in Stock F?

You have invested 30 percent of your portfolio in Jacob, Inc., 40 percent is Bella Co., and 30 percent in Edward Resources. What is the expected return of your portfolio if Jacob, Bella and Edward have expected returns of 0.05, 0.13 and 0.18, respectfully? Round to two decimal places.