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A friend of your believes that BlackBerry stock is now overvalued. As a result, she expects that their stock price, now at $14 per share, will not go up any further. She is prepared to back up her conviction by offering you the following bet. If in exactly one year from now Blackberry stock price is higher than $14/share, she will give you two hundred times the amount of the difference (e.g., suppose the price in one year is $16 per share, you will get $400). On the other hand, if the price in one year ends up below $14/share, you will have to give her two hundred times the amount of the difference (e.g., suppose the price in one year is $11 per share, you will have to give her $600). Suppose that the expected return on Blackberry stock is 7% p.a. Suppose also that the current risk-free rate is 2% p.a. and Blackberry does not plan to pay dividends in the next year. What is the value of this bet to you? [Hint: Write out the payoff of the bet. What does the payoff look like?]
Beta Electronics is considering the purchase of testing equipment that will cost $828,000 to replace old equipment. Assume the new equipment will generate before-tax savings of $415,000 over the four years. The new equipment will result in additonal ..
Moby Dick Corporation has sales of $4,635,480 income tax of $400,651; the selling general and administrative expenses of $294,228; depreciation of $395,852; cost of goods of $2,543,550; and interest expense of $188,723. Calculate the amount of the fi..
Suppose a company has a net income of $1,000,000 and a plowback ratio of 40%. There are 50,000 shares of stock outstanding. The company plans to increase dividends by 22% each year for the next 2 years and then apply a 2.25% growth rate to dividends ..
Instead of consulting the time value of money charts or a calculator, calculate this problem “long-hand”.
Are there any legal services that allow transferring money between countries without requiring persons' identification?
Find the expected return for the portfolio if she invests 75% of her funds in Stock A.
An all-equity firm wants to raise $50M to fund a new investment project. If things go well following the new investment, the present value of the cash flows of the firm will be $500M (state G). Suppose that the manager announces that the firm will fu..
The Poseidon Swim Company Produces swim trunks. The average selling price for one of their is $45.59. The variable cost per unit is $27.46, Poseidon Swim has an average fixed cost per year of $53,331. What is the break even point in dollar sales?
Kerr, Inc., a major U.S. exporter of products to Japan denominates its exports in dollars and has no other international business. It can borrow dollars at 9 percent to finance its operations or borrow yen at 3 percent. If it borrows yen, it will be ..
Beginning three months from now, you want to be able to withdraw $1,700 each quarter from your bank account to cover college expenses over the next four years. If the account pays .39 percent interest per quarter, how much do you need to have in your..
The company has a second debt issue on the market, a zero coupon bond with 4 years left to maturity. What is the company's total book value of debt?
What is the amount to use as the annual sales figure when evaluating this project?
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