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A company has the opportunity to bid for drilling rights for one year on a tract of land. The cost of extracting the oil is $18 per barrel, and the current (and expected future) price of oil is $16 per barrel. Because drilling had a negative contribtuion margin, an NPV calculations says that the drilling rights have a negative NPV. Treating this issue like and option, from past history, we know the annual standard deviation of the price of oil is 30%. Given this volatitlity, a firm contemplating a bid for the drilling rights can expect that at some point the price may rise to a point that is profitable. The right to drill is like a call option. By paying the exercise price of $18, the firm had the right to receive one barrel of oil. The option lasts for one year until drilling rights expire. The risk free rate is 4%, what is the value of this drilling option? The firm expects the field to produce 10,000 barrels a day. Normal production occurs for all 365 days a year. What is the total value of this drilling option for 1 year?
Gross revenue last year were $9.9 million, and total costs were $5.0 million. Blaine Company has 1.6 million shares of common stock outstanding. Gross revenues and costs are expected to grow at 6 percent per year.
Russo's Gas Distributor, Inc. wants to determine the required return on a stock with a beta coefficient of 0.5. Assuming the risk free rate of 6 percent and the market return of 12 percent, compute the required rate of return.
Reflect on the papers. Synthesize the key points they're making and consider the challenges of such points in a given context within your environment.
Marine, Inc., manufactures a product that is available in both a flexible and a rigid model. The company has made the rigid model for years; the flexible model was introduced several years ago to tap a new segment of the market.
Why or why not? Do you see any potential drawbacks to adjusting the returns to purge microstructure-induced autocorrelation and Write a MATLAB function called compute_overlapping_variance_ratio that takes two inputs, a vector of observations Y and a..
Jack Robbins is saving for a new car. He needs to have $ 21,000 for the car in three years. How much will he have to invest today in an account paying 8 percent annually to achieve his target
Objective and multiple choice questions on Financial Econometrics responsible for creating financial statements.
A firm offers terms of 2/15, net 40. What effective annual interest rate does the firm earn when a customer does not take the discount. Without doing any calculation,
Students will construct a well-diversified portfolio using an initial investment stake of $50,000 (the portfolio should use 95% of the fund, but they may not use more than $50,000).
The exercise price on one of the First Link Investment corporation's call option us $15, its exercise value is $22 and its premium is $5. what are the option's market value and the stock's current price
If the cost of common equityfor the firm is 17.1%, the cost of prefered stock is 9.3%, the before tax cost of debt is 7.7% and the firms tax rate is 35%, what is QM's weighted average cost of capital
What is capital budgeting, what is the capital budgeting process, what are the principles of capital budgeting and when do we make a capital investment?
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