What is the primary difference in regard to the legal liability of the owners? Explain with examples.

Ms. Higden has been offered yet another incentive scheme. She will receive a bonus of $500,000 if the stock price at the end of the year is $120 or more; otherwise she will receive nothing. (Don’t ask why anyone should want to offer such an arrangement. Maybe there’s some tax angle.)

What combination of options would provide these payoffs? (Hint: You need to buy a large number of options with one exercise price and sell a similar number with a different exercise price.)

Please explain how you find the answer

A & B Enterprises is trying to select the best investment from among two alternatives. Each alternative involves an initial outlay of $100,000. Their cash flows follow:

                YEAR                                    A                                                         B  

                1                                        30,000                                                       0   

                2                                        30,000                                                 25,000

                3                                        30,000                                                 35,000           

                4                                        30,000                                                 45,000

                5                                        30,000                                                 50,000

Evaluate and rank each alternative based on

        a.     payback period

        b.     net present value (use a 10% discount rate) and

        c.     internal rate of return.

Use the option quote information shown below to answer the questions that follow. The stock is currently selling for $36.

a. Suppose you buy 19 contracts of the February 37 call option. How much will you pay, ignoring commissions? (Do not round intermediate calculations.)

Cost           $  

Suppose you buy 19 contracts of the February 37 call option and Macrosoft stock is selling for $39 per share on the expiration date.

b-1. How much is your options investment worth? (Do not round intermediate calculations.)

Payoff           $  

b-2. What if the terminal stock price is $38? (Do not round intermediate calculations.)

Payoff           $  

Suppose you buy 19 contracts of the August 37 put option.

c-1. What is your maximum potential gain? (Do not round intermediate calculations.)

Maximum gain           $  

c-2. On the expiration date, Macrosoft is selling for $32 per share. How much is your options investment worth? (Do not round intermediate calculations.)

Position value           $  

c-3. On the expiration date, Macrosoft is selling for $32 per share. What is your net gain? (Do not round intermediate calculations.)

Net gain           $  

Suppose you sell 19 of the August 37 put contracts.

d-1. What is your net gain or loss if Macrosoft is selling for $33 at expiration? (Input your answer as a positive value. Do not round intermediate calculations.)

(Click to select)  Gain  Loss             $  

d-2. What is your net gain or loss if Macrosoft is selling for $40 at expiration? (Input your answer as a positive value. Do not round intermediate calculations.)

(Click to select)  Gain  Loss             $  

d-3. What is the break-even price, that is, the terminal stock price that results in zero profit? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Break-even           $

REPLACEMENT ANALYSIS

The Bigbee Bottling Company is contemplating the replacement of one of its bottling machines with a newer and more efficient one. The old machine has a book value of $650,000 and a remaining useful life of 5 years. The firm does not expect to realize any return from scrapping the old machine in 5 years, but it can sell it now to another firm in the industry for $280,000. The old machine is being depreciated by $130,000 per year, using the straight-line method.

The new machine has a purchase price of $1,150,000, an estimated useful life and MACRS class life of 5 years, and an estimated salvage value of $160,000. The applicable depreciation rates are 20%, 32%, 19%, 12%, 11%, and 6%. It is expected to economize on electric power usage, labor, and repair costs, as well as to reduce the number of defective bottles. In total, an annual savings of $250,000 will be realized if the new machine is installed. The company's marginal tax rate is 35%, and it has a 12% WACC.

1. What initial cash outlay is required for the new machine? Round your answer to the nearest dollar. Negative amount should be indicated by a minus sign.
   $
   
2. Calculate the annual depreciation allowances for both machines and compute the change in the annual depreciation expense if the replacement is made. Round your answers to the nearest dollar.

   Year	Depreciation Allowance, New	Depreciation Allowance, Old	Change in Depreciation
   1	$	$	$
   2
   3
   4
   5

3. What are the incremental net cash flows in Years 1 through 5? Round your answers to the nearest dollar.

   Year 1	Year 2	Year 3	Year 4	Year 5
   $	$	$	$	$

4. Should the firm purchase the new machine?

A stock price is currently $50. It is known that at the end of three months, it will be either $55 or $45. The risk-free interest rate is 12% per annum with continuous compounding. What is the value of a three-month European call option with a strike price of $51?

You are celebrating your 22^nd birthday today. You have decided to start investing toward your retirement beginning one month from today. For the first twenty years, you will invest $500 every month. During the next ten years, you will increase your contributions to $900 per month. For the remainder of your working life until you retire at age 67, you plan to invest $1,500 every month. If your investments earn a rate of return of 8.4 percent throughout your working life, how much will be in your retirement account on the day you retire?

1. Below, you will see a pricing curve for Oil Futures. Your client is an oil producer (they are extracting oil from the ground and selling it to refineries)    They wish to hedge their estimated production for March 2021, June 2021, and September 2021.

Oil Pricing Curve

June 2020 $52.35

Sept 2020 $51.00

Dec 2020    $50.05

Mar 2021 $48.10

June 2021 $47.15

Sept 2021    $44.25

1. Oil future prices are said to be in __________.
2. What hedge rates could your client lock into today for Mar21, Jun21, and Sep21?
3. On settlement date for each of the 3 hedges, assume the spot price of oil has dropped to $38.00 per barrel. Show the calculations (2 steps) of the settlement for each of the above three dates. ($38.00/barrel is the price for each of the three dates)

ABC’s the most recent free cash flow (FCF0) is $200 million. The free cash flow is expected to grow at a rate of 40 percent, and 20 percent in the second year. After two years, it is expected to grow forever at a constant rate of 5 percent. The cost of common stock (rs) is 12% and the weighted average cost of capital (WACC) is 9%. ABC balance sheet shows $20 million in short term investments that are unrelated to operations. The balance sheet also shows $100 million in debt, $50 million in preferred stocks, and $250 million in common stocks.If the company has 40 million shares of common stocks, what is your best estimate for the stock price per share today? Assume that company's book values of debt and preferred stocks are very close to the market vales.

1. You're buying a used car for $8000 but paying $1500 in cash immediately. You’ll be borrowing the difference from a local bank. Your first payment to the bank will occur at the end of the 8th month. The last payment will occur at the beginning of the 43rd month. The payments will all be equal in size.   

The interest rate on the car loan is 0.50% per month (the equivalent of 6% per year - when annualized as an APR). i.e. Use r = 0.50% (per month) in your computations.

A) What is the size of the first payment?

B) Now assume that the size of the car payments increases by 2% every month. What is the size of the first payment?

C) Now assume that the size of the car payments decreases by 2% every month. What is the size of the 4th (fourth)  payment?

D) Now assume that the size of the car payments decreases by 0.50% every month. What is the size of the 9th (ninth) payment?

E) Now assume that the size of the car payments increases by 0.50% every month. What is the size of the 9th (ninth) payment?

Please help me this is urgent!!

Firm C currently has 320,000 shares outstanding with current market value of $33 per share and generates an annual EBIT of $1,500,000. Firm C also has $1 million of debt outstanding. The current cost of equity is 9 percent and the current cost of debt is 6 percent. The firm is considering issuing another $3 million of debt and using the proceeds of the debt issue to repurchase shares (a pure capital structure change). It is estimated that the cost of the new debt will be 7 percent and that the cost of equity will rise to 10 percent with the additional debt. The marginal tax rate is 34 percent.

a. What is the current market value of the firm?

b. What will the firm’s market value be after the announcement of the new debt issue? (Note that total market value of debt will be D0 + D1 and the interest costs that must be subtracted from EBIT when calculating the market value of equity must be calculated in two parts and then added: Kd0D0 + Kd1D1).

c. What will the estimated new share price be after the capital structure change announcement?

d. How many shares are outstanding after the repurchase?

6. Make sure that you draw a high quality, detailed timeline – similar in quality to those in Example 12 and Problem 15.

Assume that you wish to begin saving for your child’s college education via making deposits into an investment account that is expected to earn 8% per year for the first 14 years. After year 14, you will place the money in a less risky investment account that is expected to earn only 5% per year, for as long as you have money in the account.

You currently have $5,000 available, and you will deposit that amount into the savings account today. Thereafter you have decided to make savings deposits 3, 4, 5, … , 9 and 10 years from today. Each of these deposits will be larger than the prior deposit by 7%.  

You’ve estimated that one year of college will cost $52,000 in 18 years, and that the three subsequent years will each cost 5% more than the prior year.

A) Determine the size of the first deposit required at time 3. (Hint: The answer is NOT $9475.37. If you got this, you did not deal with the $5000 at t=0 at all. The correct answer is between $8600 and $8700).

Please help me this is urgent!!!

You bought 500 forever stamps just before the price went up in January of 2014 at $0.46/stamp, a $0.03 savings per stamp. If you could have paid off a credit card charging 12% per year instead of investing in stamps, how fast must you use the stamps to breakeven? Assume the $0.49 price never changes before you run out of stamps. (Hint use 12% / year as your effective interest rate per year)

a. 3 months

b 6 months

c 10 months

d 12 months

e 36 months