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Suppose GeKay Inc. has a two-year lease over a small copper deposit; the government acquires all rights to the property at the end of the lease. It is known that the deposit contains eight million pounds of copper. Mining would involve a one-year development phase that would have an immediate (t=0) cost of $1.25 million. At the end of the development phase (at t=1), if GeKay decides to continue and mine the copper, GeKay would then pay all its extraction costs to a subcontractor, in advance, at a rate of 85 cents per pound (8 million pounds). This amounts to a cash payment of $6.8 million one year from now (at t=1). GeKay would also then (at t=1) sell the rights to the copper to be recovered (8 million pounds) to a third party at the spot price of copper at that time. Copper prices follow a process such that percentage price changes are normally distributed with mean 7% and standard deviation 20%; the current price is .95 cents per pound. The required return for copper mining projects is 10% and the riskless rate of interest (continuously compounded) is 5%.Determine thenet present valueNPVof GeKay's potential $1.25m mining venture with standard Discount Cash Flows (DCF) analysis and compare it to the NPV from Real Options analysis.
Explain with proof that c >= max(S - X, 0), where c is the value of the European call option, S is the price of the underlying asset and X is the strike of the option. The follo
Please explain and help me with a homework question about percent of sales method
Suppose cabela has 2 classes of shares. Preferred and common, Cabela has 2000 shares of preferred, 4000 shares of common outstanding shares. The preferred class is 7% cumulative pr
you buy a car for ths 10000000 to be repaid in 3 years, with annua interest of 12%. preapare a loan amortization table
1. Motives - This section should include a detailed discussion of the main motives for the proposed acquisition supported by the latest academic literature and advances within the
A person is willing to sell some stock
calculate pv
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a) Put options on Chicken King with a strike price of $42.50 and 2 months to maturity are properly priced to sell for $3.68 (no bid-ask spread). Call options with the same stri
Question: (a) i. Expected loss= Exposure amount* probability of default* loss given default ii. Positive covenants= covenants that showing the direction to a company. P
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