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Construct a collar using the October 160 put. First use the Black-Scholes-Merton model to identify a call that will make the collar have zero up-front cost.
Then close the position on September 20. Use the spreadsheet to find the profits for the possible stock prices on September 20.
Generate a graph and use it to identify the approximate breakeven stock price. Determine the maximum and minimum profits.
Suppose you borrow $200500 when financing a coffee shop which is valued at $275000. You expect to generate a cash flow of $550000 at the end of the year. The cost of debt is 8%. What is the cost of equity? What should the value of the equity be?
How long should you delay payment given the terms of your current suppliers? Prove your answer by relating the annualized cost of the discount to your investment or borrowing rate.
If the value of a share of stock is the present value of future dividends, how is it possible that value could actually increase with a reduction of dividends to invest in new assets?
Suppose Arnell pays interest of 9% per year on its debt. What is its annual interest tax shield?- What is the present value of the interest tax shield, assuming its risk is the same as the loan?
A share of common stock has just paid a dividend of $2.00 that is D0= $2.00. If the expected long-run constant growth rate for this stock is 5 percent, and if investors require an 8 percent rate of return (Rs=8%), what is the expected price of the st..
Pippi’s Puppies Inc. has an unlevered beta of 0.80. The firm currently has no debt, but is considering changing its capital structure to be 30% debt and 70% equity. Its corporate tax rate is 30%, rRF = 4% and the market risk premium is 5%. What is th..
Suppose an investor, desiring to earn a higher interest than the average paid by bank on savings, purchases two bonds, say bond A and bond B, and intends to sell them immediately after getting the third coupon payment. The characteristics of the two ..
The above borrowing rates represent the borrowing rates the firms can obtain for a five year fixed rate debt issue in U.S. dollars or Swiss francs. Suppose XYZ wishes to borrow Swiss francs and LMN wishes to borrow U.S. dollars. LMN demands a 11 pct ..
A bond is selling at $900 (below its par value of $1000). The bond matures in 10 years and has pays offers a 5% coupon rate. Interest is paid semi-annually. What is the bond’s yield-to-maturity? A bond has face value of $1000 and a coupon rate of 8%...
A company has $1 million in debt and $2 million in equity. The interest rate on its debt is 5%, and the required rate of return on its equity is 15%. Its effective tax rate is 30%. What is its weighted average cost of capital (WACC)?
GTB has a 25% tax rate and has $85.80 million in assets, currently financed entirely with equity. Equity is worth $6 per share, and book value of equity is equal to market value of equity. What will be the level of the expected EPS if GTB switches to..
You borrowed $1,200 at 8% compounded annually. Your payments are $90 at the end of each year. How many years will you make payments on the loan?
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