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The Dallas/Fort Worth International Airport would like to buy the option to purchase a large parcel of land on the edge of the city of Grapevine from a real estate investor. The option would give the airport the right to buy the land in one year for $10 million. Real estate experts estimate that the land will be worth either $12 million or $8 million in one year. The current value of the land is $9.5 million. If the risk-free rate of interest is 5% per year, what is the fair market value of the option?
[Hint: You can use the replicating portfolio approach or binomial pricing.]
If the industry days sales outstanding is 65 days and a firm with sales of $1,034,550 has receivables of $268,700, how much in interest expense could the firm save if the receivables turn over as quickly as the industry average and the cost of carryi..
As interest rate and consequently investors required rate of return, change over time the __________ of outstanding bonds will change as a result.
There are alot of different types of bonds such as treasury, corporate, municipal, and foreign. Do all bonds have a return date? Legally, The original maturates has a range from 10 to 40 years. What happens after 40 years if the business goes bankr..
Discuss the performance and financial position of the three companies and in your discussion highlight the possible causes of the differences between the three companies.
The futures price of a commodity such as corn is $1.00. The contracts are for 10,000 bushels, so a contract is worth $10,000. The margin requirement is $1,000 a contract, and the maintenance margin requirement is $600. How much must you initially rem..
Calculate the insurance premium. Assume that the volatility of the index is 15% per annum and the dividend yields and the riskOfree interest rate when expressed as simple rates are approximately the same as the continuously compounded..
Da Feng is looking to refinance his home because rates have gone down since he purchased the house 5 years ago. He started with a 30-year fixed-rate mortgage of $213,000 at an annual rate of 6.70%. He has to make monthly payments. He can now get a 25..
A company's common stock is currently selling for $54 per share. Last year, the company paid dividends of $2.98 per share. The projected growth at a rate of dividends for this stock is 4.93%. Which rate of return does the investor expect to receive o..
Frazier Manufacturing paid a dividend last year of $2, which is expected to grow at a constant rate of 5%. Frazier has a beta of 1.3. If the market is returning 11% and the risk-free rate is 4%, calculate the value of Frazier's stock.
An investment project has annual cash inflows of $8,600, $8,300, $8,700, and $7,300, and a discount rate of 11 percent. If the initial cost is $21,900, the discounted payback period for these cash flows is years. (Round your answer to 2 decimal plac..
Momsen Corp. is experiencing rapid growth. Dividends are expected to grow at 26 percent per year during the next three years, 16 percent over the following year, and then 5 percent per year indefinitely. The required return on this stock is 12 percen..
Suppose a company will issue new 25-year debt with a par value of $1,000 and a coupon rate of 10%, paid annually. The tax rate is 35%. If the flotation cost is 5% of the issue proceeds, then what is the after-tax cost of debt? Disregard the tax shiel..
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