25)   Your firm is one of the largest bakery’s in the area. As part of your risk management process, you are considering using options to hedge the price risk on your biggest input – wheat. You have determined that a price of R52/per ton would allow for you to keep the same profit margin as last year. The following wheat options offer a strike price of R50/per ton expiring in 1 month:
   Call options on wheat are selling at a premium of R0.87 per ton.
   Put options on wheat are selling for R0.72 per ton.
(a)   Given the information above, will you need need a call or a put option?     [1 mark]
(b)   If each option is for 100 tons, and you require 1000 tons of wheat, demonstrate the outcome if, at expiry, the spot price of wheat is (i) R40 per ton and (ii) R60 per ton.   [12 marks].

The Saunders Investment Bank has the following financing outstanding.

Debt: 150,000 bonds with a coupon rate of 11 percent and a current price quote of 108; the bonds have 20 years to maturity. 320,000 zero coupon bonds with a price quote of 16 and 30 years until maturity. Assume semiannual compounding.

Preferred stock: 240,000 shares of 9 percent preferred stock with a current price of $67, and a par value of $100.

Common stock: 3,500,000 shares of common stock; the current price is $53, and the beta of the stock is .9. Market: The corporate tax rate is 25 percent, the market risk premium is 8 percent, and the risk-free rate is 5 percent.

What is the WACC for the company? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places (e.g., 32.16).

5. Kasetsart Agriculture, a Thai agricultural technology research firm, announced this morning that it 
has  hired  the  world’s  most  knowledgeable  and  prolific  agriculture  researchers.  Before  today, 
Kasetsart’s equity had been selling for 100 baht. Assume that no other information is received over 
the next week, and that the Thai stock market as a whole does not move. 
a. What do you expect will happen to Kasetsart’s share price? 
b. Consider the following scenarios: 
(i) The share price jumps to 118 baht on the day of the announcement. In subsequent days it 
floats up to 123 baht, then falls back to 116 baht. 
(ii)) The share price jumps to 116 baht and remains at that level. 
(iii) The share price gradually climbs to 116 baht over the week.  
Which  scenario(s)  indicate  market  efficiency?  Which  do  not?  Why?  Provide  a  behavioural 
interpretation for each scenario.

Questions: Consider a small open economy of Jamaica whose domestic supply and demand of rum is as follows.

Demand: Q = 500 - P

Supply: Q = 2:5P - 25

where quantity is in thousands of crates and price is in Jamaican dollars (J$).

i) What are the equilibrium price and quantity in autarky equilibrium? (5 points)

ii) Now suppose the world price of rum is J$ 100. In an attempt to protect local rum

producers, the government imposes a quota of 105 thousand crates on imports of

rum.

a) What will be the local price of a crate of rum, given the quota?

b) What is the value of the consumption deadweight cost associated with the quota?

iii) When the demand for rum changes to Q = 447:5 ? P, will the deadweight cost

decrease or increase?

Hint: You do not need to calculate the actual value of the deadweight cost

Suppose that a simple economy produces only nachos, tacos, tortilla chips and beer.  Assume all tortilla chips are used in the production of nachos.

a. Use the table to calculate nominal GDP, real GDP, and the GDP price index for each year. Use 2014 as the base year.

b. Did production increase more between 2013-2014  or 2014-2015? Explain

c. Did prices increase more between 2013-2014 or 2014-2015?  Explain.

The Temecula wine market is comprised of two (duopolist) wineries. Market demand for wine is P = 2500 – 2Q, which is produced at marginal cost MC = 100 for each firm. Market output Q = q_A + q_B (where A and B denote output of the two wineries.)

A) The two wineries act as Cournot duopolists. Write out each firm’s best (reaction) response function and find the market price and output for each winery.

B) Draw the best response functions and explain how the firms arrive at the equilibrium.

C) Compare the price and output in part (a) to if the two wineries collude as a single-price non-discriminating monopoly.

D) What would be the price and output in the market if both firms break the collusion agreement in part c and act as perfect competitors?

PLEASE COMPLETE ALL PARTS AND SHOW GRAPHS!!!!!

The Saunders Investment Bank has the following financing outstanding.

What is the WACC for the company? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

WACC            %

The Saunders Investment Bank has the following financing outstanding.

What is the WACC for the company? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Company A is selling packing material to the consumer products company B. Company B needs 1.021 km of a certain carton per year. The costs structure is as follows.

Orders below 10,000 m are not allowed.

The company uses a holding cost rate of 30% per year. An economist has determined the fixed ordering costs at company B and he has arrived at a value of 8 euro per order. Assuming the lowest price (222,4 euro / 1000 m), calculate the optimal order quantity using the EOQ model. Is the assumed price valid under this quantity? Next, determine the optimal order quantity while taking the discount price structure into account.