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A US firm has Euro receivables of E100,100,000 from Germany in six months. It decides to use options to hedge the receivables. Put options with exercise price $1.60 and premium $0.04 are available.
Suppose the firm fully hedges it’s receivables (that is a fall in the value of euro below the strike price will not reduce the net cash flow to the firm).
The spot rate in six months is E1 for $1.40. What will be the net amount the firm will receive from the put options (put payoff minus premium)?
Accelerator, Inc. manufactures a fuel additive called surge. Surge sells for $44 per container and the company produces and sells 80,000 containers per month. The company has established the following standards for each container of surge produced: C..
What are some actions an entrenched management might take that would harm shareholders? How is it possible for an employee stock option to be valuable even if the firm’s stock price fails to meet shareholders’ expectations?
A firm just paid a dividend of $3.00 and the dividend will grow at a constant rate of 10% forever and the required rate of return is 16%. What is the value of the stock?
Gamma Electronics is considering the purchase of testing equipment that will require an initial outlay (cost) of $500,000 to replace old equipment. The purchase of this new equipment will result in a positive after-tax cash benefit/in-flow of $200,00..
P.D. Corporation is considering the purchase of a high-speed lathe that has an invoice price of $250,000. The cost to ship the lathe to P.D.'s factory is $10,000, and the existing facilities will require modifications that are expected to cost $20,00..
Scott is purchasing a home for $220,000. The down payment is 30% and the balance will be financed with a 15- year mortgage at 8% and 4 discount points. Scott made a deposit of $10,000 when the sales contract was signed. If the sellers are responsible..
Business Services, Inc. is expected to pay its first annual dividend of $0.80 per share three years from now. Starting in year six, the company is expected to start increasing the dividend by 4 percent per year. What is the value of this stock today ..
A trader sells a call option with a strike price of $45 and a put option with a strike price of $40. Both options have the same maturity. The call costs $3 and the put costs $4. Draw a diagram showing the variation of the trader’s profit with the ass..
Crissie just won the lottery, and she must choose between three award options. She can elect to receive a lump sum today of $60 million, to receive 10 end-of-year payments of $9.3 million, or 30 end-of-year payments of $5.3 million. If she expects to..
Must give an equation using estimated figures from Starbucks. construct an equation to calculate the expected or required rate of return for starbucks using the APT model.
Net Asset Value (NAV) of a mutual fund is calculated every day. The book suggests that a closed-end fund (a fund that has a fixed number of shares) can trade above or below the NAV. As an example, someone could invest in Exchange Traded Funds (ETF) o..
Suppose you also know that the firm's net capital spending for 2011 was $1,340,000, and that the firm reduced its net working capital investment by $63,000.
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