Reference no: EM131346242
Use simple decision trees and a 10% per year discount rate to evaluate Project Sable, which has two phases. You may invest in the first, in both or in neither. You may not invest in the second phase without investing in the first. Phase 1 requires an investment of $100. One year later the project delivers either $160 or $60 with equal probability. At that time, after the phase 1 payout has been received, you may invest an additional $100 for phase 2. One year later, phase 2 pays out either 20% more cash than phase 1 actually delivered or (equally likely) 20% less. Assume no taxes.
a. How much would Project Sable be worth if it offered only the phase 1 opportunity?
b. How much would phase 2 be worth if you had to choose today, once and for all, whether or not to invest in it?
c. How much is Project Sable worth if you have access to both phases and can wait to decide whether to invest in phase 2?
d. How would you allocate the value of Project Sable between assets-in-place and real options?
e. Assuming that investment in Project Sable will require external funding, what dollar amounts of debt and equity do you recommend (assume capital markets are informed and efficient, and that the risk-free rate of interest is 5%)?
Long-term debt retirement obligations
: The Danville Company is considering a $50 million expansion (capital expenditure) program next year. The company wants to determine approximately how much additional financing will be needed if the expansion program is undertaken. Long-term debt reti..
|
Find the convexity of seven-year maturity
: Find the convexity of a seven-year maturity, 8.4% coupon bond selling at a yield to maturity of 9.4%. The bond pays its coupons annually.
|
Translated value of account receivable-inventory respectivey
: The Herlitzka Company, a U.S. multinational firm, has a 100% stake in a Swiss subsidiary. The Swiss franc (SF) has been determined to be the functional currency. All the common stock of the subsidiary was issued at the beginning of the year and the s..
|
Preferred stock outstanding-risk-free rate
: Given the following information for Dunhill Power Co. find the WACC. Assume the company’s tax rate is 35 percent. Debt: 3,000 8 percent coupon bonds outstanding, $1,000 par value, 20 years to maturity, selling for 103 percent of par; the bonds make s..
|
Value of project sable in assets-in-place and real options
: Use simple decision trees and a 10% per year discount rate to evaluate Project Sable, which has two phases. You may invest in the first, in both or in neither. You may not invest in the second phase without investing in the first. Phase 1 requires an..
|
Determine approximately how much additional financing
: The Danville Company is considering a $50 million expansion (capital expenditure) program next year. The company wants to determine approximately how much additional financing will be needed if the expansion program is undertaken. Long-term debt reti..
|
An all-equity firm is considering the projects
: An all-equity firm is considering the following projects: Project Beta Expected Return W .70 11% X .95 13 Y 1.05 14 Z 1.60 16 The T-bill rate is 5 percent, and the expected return on the market is 12 percent. Which projects have a higher expected ret..
|
The cost of debt capital for a firm
: The cost of debt capital for a firm
|
Monthly payments occurring one year from today
: You recieve a payment today of $2,000,000, and then monthly payments of $35,000 each for 4 years (48 total monthly payments), with the first of the monthly payments occurring one year from today. If you use a discount rate of 2.28% APR with monthly c..
|