Estimate the debt and assets ratio, Cost Accounting

1. Wrangle Corporation stock sells at a price of $80 a share and the riskless rate is 7%. Calculate the price of a 9-month call option on Wrangle stock with an exercise price of $70. The σ of Wrangle is 0.55.

2. Archer Co common stock has market price $75 per share and its sigma is 0.3. Find the value of a European call option, with an exercise price of $80 and expiring after 73 days, on the Archer stock. The riskless rate is 7%.

3. Presto Inc has $10 million face value zero-coupon bonds due in 6 years, and its σ is 0.4. The total market value of Presto is $25 million and the riskless rate is 4%. The company has 3 million shares outstanding. Find its price per share.

4. Admiral Company has a total value of $65 million. Its debt is in the form of zero-coupon bonds, which will mature in 9 years. The face value of bonds is $15 million. The riskless rate is 3.5% at present. The σ of Admiral is 0.35. Find the debt/assets ratio of Admiral.

5. Sisters Amy and Beth jointly own Butler Corporation. Amy's share is 70%. The value of the corporation is $500,000 and its risk in terms of σ is 0.6. Amy would like to buy Beth out and offers her $150,000 cash or a note for $300,000 payable by Butler Corporation after 5 years. The riskless rate is 8%. Should Beth take the cash or the note?

6. John Douglas has bought 100 oz of gold at $1150 an oz. He has sold call options on 30 oz of gold, with exercise price $1200, for $25 each; and options on 40 oz of gold, exercise price $1175, for $50 each. All options will expire after 6 months and then Douglas will liquidate his position. Douglas expects the price of gold after six months to be $1187.50 an oz. He uses 12%, continuously compounded, as the discount rate. Calculate the NPV of this hedge.

7. Tom and Jerry started an ice-cream company by investing $50,000 each. Tom was a stockholder, and thus the owner of the company. The corporation agreed to pay Jerry $150,000 after ten years for his share of the business. However, by mutual agreement, they sold the company after 5 years for $600,000 and divided the money according to the option pricing theory. The riskless rate at the time was 4%, and the σ of Tom & Jerry Company was 0.5. Find the amount of money that went to Tom and to Jerry.

8. Sacramento Company has total value $325 million, and it has $100 million (face value) of zero-coupon bonds maturing after 10 years. The σ of Schenectady is .45 and the risk free interest rate is 5%. Using Black-Scholes model, estimate the debt/assets ratio for the company.

Posted Date: 3/7/2013 12:34:58 AM | Location : United States







Related Discussions:- Estimate the debt and assets ratio, Assignment Help, Ask Question on Estimate the debt and assets ratio, Get Answer, Expert's Help, Estimate the debt and assets ratio Discussions

Write discussion on Estimate the debt and assets ratio
Your posts are moderated
Related Questions
Andrew Industries is contemplating issuing a 30-year bond with a coupon rate of 7% (annual coupon payments) and a face value of $1000. Andrew believes it can get a rating of A from

1. when using the internal rate of return method to evaluate capital spending on a new project, the project will be accepted if the internal rate of return is equal to or greater t

A bank in a medium-sized midwestern city, Firm X, currently charges $1 per transaction at its ATMs.  To determine whether to raise price, the bank managers experimented with a n

Standard Costing A standard cost is a predetermined calculation of how much is supposed to be incurred under specific particular working conditions. It is not an average of pa

A. Material Sampling -Analyzing Direct Material Costs You are reviewing a cost proposal, which includes an $800,200 direct material estimate. After Initial examination of the pro

under which type of asset the investment comes


Herrestad Company does produce and sell two products and the details below will be used to prepare a segmented income statement (showing the income for each product and the total)

Determine Cost per Unit By Using Marginal and Absorption Costing The given information was extracted from the book of a company for the year ended on date 31/12/2001. Outpu