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Consider a biotechnology firm, which has no cash flow-producing assets currently but has one product in the pipeline that has much promise in providing a treatment for diabetes. The product has not been approved by the FDA, and, even if approved, it could be faced with competition from similar products being worked on by other firms. The firm, however, would hold the patent rights to this product for the next 25 years. After a series of simulations, under a variety of technological and competitive environments, the expected present value of the cash inflows from selling the product is estimated to be $500 million with a variance of 0.20 (signifying the uncertainty of the process). The expected present value of the cost of developing is estimated to be $400 million. The annual cash flows on the product, once developed, are expected to be 4% of the present value of the inflows. The 25-year bond rate is 7.0%. Using the Black-Scholes option model pricing, calculate the value of the firm. (TIP: watch for the dividend yield) – show your calculations (d1, d2, N(d1), N(d2) and the value of the call.
Simpkins Corporation does not pay any dividends because it is expanding rapidly and needs to retain all of its earnings. However, investors expect Simpkins to begin paying dividends, with the first dividend of $0.50 coming 3 years from today. If the ..
If you invest $3,377 today in an account earning 15.12% interest and leave the account unmolested for 35 years; how much will be in the account at the end of the 35 years?
Compare the variables in the binomial model with those in the black-scholes-mertion model. Note any differences or similarity and explain
2 pages single space. A) Overview/Summary, B) Opinion/Analysis, C) Relevance to financial management, The Overview/Summary section should include a statement of the author’s hypothesis or proposition. This section should be the briefest.
If you invested in a long-term U.S. Treasury bond to hold to maturity, which form of risk should most concern you?
1) Calculate the value of your portfolio. 2) Calculate the D, G, W and k of your portfolio. 3) If the price goes up by $2 suddenly, what is the value of your portfolio after that change?
Yield to maturity Heymann Company bonds have 4 years left to maturity. Interest is paid annually, and the bonds have a $1,000 par value and a coupon rate of 10%. What is the yield to maturity at a current market price of $871? Would you pay $871 for ..
Stock Y has a beta of .98 and an expected return of 10.30 percent. Stock Z has a beta of .80 and an expected return of 9 percent. What would the risk-free rate have to be for the two stocks to be correctly priced relative to each other?
The NPV and IRR derived from estimated cash flows for a capital budgeting project are: a. essentially expected values or means b. likely to differ from the actual results of the project c. random variables with their own probability distributions d. ..
Describe the Net Present Value (NPV) method for determining a capital budgeting project's desirability. What is the acceptance benchmark when using NPV?
The numbers in Figure represent relative cost in hundreds of millions ($×108). Find the cheapest West Coast to East Coast pipeline.
David Wright, CFA, an analyst with Blue River Investments, is considering buying a Montrose Cable Company corporate bond. He has collected the following balance sheet and income statement information for Montrose as shown in Exhibit 10.10. Specifical..
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