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IBM stock currently sells for 92 dollars per share. The implied volatility equals 42.5 percent. The risk-free rate of interest is 3.5 percent continuously compounded.
If you owned a 100 shares of IBM stock with strike price 89 and maturity of 3 months, how many call options would you have to buy (sell) to create a delta-neutral hedge?
Assume each option controls one share of IBM stock.
The J. Harris Corporation is considering selling one of its old assembly machines. What would be the taxes associated with this sale?
Your Christmas ski vacation was great, but it unfortunately ran a bit over budget. All is not lost: You just received an offer in the mail to transfer your $13,700 balance from your current credit card, which charges an annual rate of 21.5 percent, t..
DuPont Analysis Last year, Stumble-on-Inn Inc. reported an ROE of 18 percent. The firm’s debt ratio was 55 percent, sales were $15 million, and the capital intensity was 1.25 times. Calculate the net income for Stumble-on-Inn last year.
What weight should be given to the debt when the firm computes its weighted average cost of capital?
A large retailer obtains merchandise under the credit terms of 1/20, net 45, but routinely takes 60 days to pay its bills. (Because the retailer is an important customer, suppliers allow the firm to stretch its credit terms.) What is the retailer's e..
For capital budgeting evaluation of replacement projects, the computation of after-tax operating cash flows for each project (i.e., existing versus proposed) is compared to arrive at incremental cash flows. This calculation requires that both depreci..
Laurel’s Lawn Care, Ltd., has a new mower line that can generate revenues of $180,000 per year. Direct production costs are $60,000, and the fixed costs of maintaining the lawn mower factory are $25,000 a year. Calculate the operating cash flows of t..
The yield to maturity on a bond is:
Which of the following forms of business does not have flow-through taxation?
In addition to project selection, what other decisions can capital budget techniques help managers with?
Bonaime, Inc., has 7.9 million shares of common stock outstanding. The tax rate is 40 percent. What is the company’s WACC?
Ace Products has a bond issue outstanding with 15 years remaining to maturity, a coupon rate of 8.4% with semiannual payments of $42, and a par value of $1,000. The price of each bond in the issue is $1,240.00. What is the bond's nominal annual yield..
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