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12.2,The XYZ firm can invest in a new DRAM chip factory for $425 million. The factory, which must be invested in today, has cash flows two years from now that depend on the state of the economy. The cash flows when the factory is running at full capacity are described by the following tree diagram:
In year 1, the firm has the option of running theplant at less than full capacity. In this case, workers are laid off, production of memory chips is scaled down, and the subsequent cash flows are half of what they would be when the plant is running at full capacity. An alternative use for the firm's funds is investment in the market portfolio. In the states that correspond to the branches of the tree above, $1 invested in the market portfolio grows as follows:
Assume that the risk-free rate is 5 percent peryear, compounded annually. Compute the project's present value
(a) with the option to scale down and
(b) without the option to scale down. Compute the difference between these two values, which is the value of the option.
A corporate bond with a face value of $1,000 and coupons paid semi-annually, what is the coupon rate of this bond?
What are the rates with continuous compounding? What is the two-year par yield?
Project S costs $15,000, and its expected cash flows would be $4,500 per year for 5 years. Mutually exclusive Project L costs $37,500, and its expected cash flows would be $11,100 per year for 5 years. If both projects have a WACC of 14%, which proje..
You are given the following information about a call option on a stock in the Black-Scholes framework:
Company A has just paid a dividend (D0) of $1.50. Calculate the expected dividends for years 1 through 5.
Last year Joan purchased a $1,000 face value corporate bond with an 9% annual coupon rate and a 10-year maturity. At the time of the purchase, it had an expected yield to maturity of 9.28%. If Joan sold the bond today for $972.96, what rate of return..
What is the approximate net present value?
What is the profitability index for the following set of cash flows if the relevant discount rate is 10 percent?
MEZCOPH is planning to put on a ten week summer exercise camp to introduce kids to the importance of exercise.
Microhard has issued a bond with the following characteristics: Par: $1,000 Time to maturity: 5 years Coupon rate: 8 percent Semiannual payments. Calculate the price of this bond if the YTM is:
Guardian Inc. is trying to develop an asset-financing plan. calculate earnings after taxes for each of your alternatives.
what is the value of the growing dividends from year 1 to 10 at time year 0 (in $ to 2 decimal places, 3.24 for $3.24)?
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