Assume you are trading an at-the-money option on a non-dividend paying stock. Let the stock price be $120, the 1-year interest rate be 3% continuously compounded, the stock volatility be 20%, and the time to maturity is 1 year. The option price is?

Hero Manufacturing has 8.1 million shares of common stock outstanding. The current share price is $81 and the book value per share is $6. The company also has two bond issues outstanding. The first bond issue has a face value of $75 million, a coupon rate of 6.2 percent and sells for 107.7 percent of par. The second issue has a face value of $55.8 million, a coupon rate of 7.4 percent and sells for 111.5 percent of par. The first issue matures in 10 years, the second in 24 years. Suppose the company’s stock has a beta of 1.4. The risk-free rate is 3.4 percent and the market risk premium is 7.3 percent. Assume that the overall cost of debt is the weighted average implied by the two outstanding debt issues. Both bonds make semiannual payments. The tax rate is 23 percent. What is the company’s WACC? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

You have been asked to forecast the additional funds needed (AFN) for Houston, Hargrove, & Worthington (HHW), which is planning its operation for the coming year. The firm is operating at full capacity. Data for use in the forecast are shown below. However, the CEO is concerned about the impact of a change in the payout ratio from the 10% that was used in the past to 75%, which the firm's investment bankers have recommended. Based on the AFN equation, by how much would the AFN for the coming year change if HHW increased the payout from 10% to the new and higher level? All dollars are in millions. Last year's sales = S0 $300.0 Last year's accounts payable $50.0 Sales growth rate = g 40% Last year's notes payable $15.0 Last year's total assets = A0* $500 Last year's accruals $20.0 Last year's profit margin = PM 20.0% Initial payout ratio 10.0%

Select the correct answer. a. $48.6 b. $50.6 c. $58.6 d. $52.6 e. $54.6

The Sorensen Supplies Company recently purchased a new delivery truck. The initial cash outflow for the new truck is $23,000, and it is expected to generate after-tax cash flows of $6,225 per year. The truck has a 5-year expected life. The expected year-end abandonment values (after-tax salvage values) for the truck are given below. The company's WACC is 8%.

1. What is the truck's optimal economic life? Round your answer to the nearest whole number.

   _______ year(s)

2. Would the introduction of abandonment values, in addition to operating cash flows, ever reduce the expected NPV and/or IRR of a project?

Which of the following would likely encourage a firm to increase the debt in its capital structure? Provide rationale for your position on each option.

a. Corporate tax rate increases

b. personal tax rate increases

c. Due to market changes, the firm's assets become less liquid

d. changes in the bankruptcy code make bankruptcy less costly to the firm

e. the firm's sales and earnings become more volatile

A manager buys three shares of stock today, and then sells one of those shares each year for the next 3 years. His actions and the price history of the stock are summarized below. The stock pays no dividends.

a. Calculate the time-weighted geometric average return on this portfolio. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

b. Calculate the time-weighted arithmetic average return on this portfolio. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

c. Calculate the dollar-weighted average return on this portfolio. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Current and Quick Ratios The Nelson Company has $1,150,000 in current assets and $575,000 in current liabilities. Its initial inventory level is $345,000, and it will raise funds as additional notes payable and use them to increase inventory.

1. How much can Nelson's short-term debt (notes payable) increase without pushing its current ratio below 1.6? Round your answer to the nearest cent.

2.What will be the firm's quick ratio after Nelson has raised the maximum amount of short-term funds? Round your answer to two decimal places.

McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $755 per set and have a variable cost of $439 per set. The company has spent $114,913 for a marketing study that determined the company will sell 5,552 sets per year for seven years. The marketing study also determined that the company will lose sales of 928 sets of its high-priced clubs. The high-priced clubs sell at $1,035 and have variable costs of $726. The company will also increase sales of its cheap clubs by 1,175 sets. The cheap clubs sell for $477 and have variable costs of $227 per set. The fixed costs each year will be $900,599. The company has also spent $110,934 on research and development for the new clubs. The plant and equipment required will cost $2,859,691 and will be depreciated on a straight-line basis. The new clubs will also require an increase in net working capital of $130,808 that will be returned at the end of the project. The tax rate is 32 percent, and the cost of capital is 8 percent. What is the sensitivity of the NPV to changes in the quantity of the new clubs sold?

Let’s Discuss: Finding Financial Information

You should be able to explain and support your reactions to the following questions:

• What kinds of financial information exist in various places?
• What is the difference between information found on the internet and other sources of information?
• What source of information that you found in your research do you find most helpful?
• How does a website like Yahoo finance help you perform ratio analysis?

A project requires an initial investment of $320,000 depreciated straight-line to $0 in 16 years. The investment is expected to generate annual sales of $90,000 with annual costs of $45,000 for 20 years. Assume tax rate of 30% and a discounted rate of 20%. What is the NPV?

-143,415.09

-268,732.79

144,612.34

214272.28

McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $766 per set and have a variable cost of $438 per set. The company has spent $133,831 for a marketing study that determined the company will sell 5,433 sets per year for seven years. The marketing study also determined that the company will lose sales of 924 sets of its high-priced clubs. The high-priced clubs sell at $1,153 and have variable costs of $679. The company will also increase sales of its cheap clubs by 1,074 sets. The cheap clubs sell for $421 and have variable costs of $238 per set. The fixed costs each year will be $902,168. The company has also spent $117,671 on research and development for the new clubs. The plant and equipment required will cost $2,897,679 and will be depreciated on a straight-line basis. The new clubs will also require an increase in net working capital of $133,007 that will be returned at the end of the project. The tax rate is 33 percent, and the cost of capital is 10 percent. What is the sensitivity of the NPV to changes in the price of the new clubs?

What is the current price of a stock that will pay a dividend of $4 at the end of Year #1, a dividend of $4.50 at the end of year #2 after which dividends will grow at a constant rate of 3% if you want 12% return?

The common stock of the Orange Incorporated has been trading in a narrow price range for the past month, and you are convinced it is going to break far out of that range in the next three months. You do not know whether it will go up or down, however. The current price of the stock is $100 per share, and the price of a three-month at-the-money put option on Orange Incorporated is $5.

a. If the risk-free interest rate is 2% per year, what must be the price of a 3-month at-the-money call option on the Orange Incorporated stock? (Note: ATM options are the options for which the strike price is equal to the current stock price.) The stock pays no dividends.

b. What would be a simple options strategy to exploit your conviction about the stock price’s future movements? To receive a full credit, you should i. Identify which options are involved in your strategy ii. Construct a payoff table and show it in this exam iii. Show payoff of your strategy on a graph

c. How far would the price of the Orange Incorporated have to move in either direction for you to make a profit on your initial investment?

The risk-free rate is 1.40% and the market risk premium is 7.00%. A stock with a β of 1.33 just paid a dividend of $1.71. The dividend is expected to grow at 24.16% for three years and then grow at 4.66% forever. What is the value of the stock?

Answer format: Currency: Round to: 2 decimal places.

The risk-free rate is 2.84% and the market risk premium is 5.79%. A stock with a β of 1.17 just paid a dividend of $1.22. The dividend is expected to grow at 21.98% for five years and then grow at 3.28% forever. What is the value of the stock?

Answer format: Currency: Round to: 2 decimal places.

Caspian Sea Drinks needs to raise $70.00 million by issuing additional shares of stock. If the market estimates CSD will pay a dividend of $2.60 next year, which will grow at 3.40% forever and the cost of equity to be 13.37%, then how many shares of stock must CSD sell?

Answer format: Number: Round to: 0 decimal places.

Could really use the help! Thanks!