Reference no: EM13753532
At time t=0 a firm has a project which costs $160 today and will yield $200 at time t=2 with probability 1/2 and $100 at time t=2 with probability 1/2. At time t=1 the firm learns what the payoff will be from the original project (i.e., whether the payoff will be $200 or $100) and, assuming they invested at t=0, the firm can choose to fund a followup project at time t=1 where the followup project requires spending an additional $100 at time t=1 and will increase eventual cash flows at time t=2 by $120. Assume riskneutrality, a zero interest rate, no direct bankruptcy costs, and no taxes. The only asset that the firm has is the idea for this project.
(a) Suppose that when the firm funds investment projects it is committed to a policy of selling equity. Thus, if they fund the original project at t=0 or the followup project at t=1 they will sell new equity. What will the market value of old equity be at time t=0 before any financing takes place?
(b) Suppose that when the firm funds investment projects it is committed to a policy of selling junior debt at t=0 to fund the original project and senior debt at t=1 to fund the followup project. The firm can choose to fund both projects, neither project, or only the original project (skipping the original project and financing the followup one is not an option). However, any projects that the firm funds will be financed according to the financing policy that it has committed to. What will the market value of equity be at time t=0 before any financing takes place?
(c) Suppose that when the firm funds investment projects it is committed to a policy of selling senior debt at t=0 to fund the original project and junior debt at t=1 to fund the followup project. The firm can choose to fund both projects, neither project, or only the original project. However, any projects that the firm funds will be financed according to the financing policy that it has committed to. What will the market value of equity be at time t=0 before any financing takes place?
|
Possible hedging techniques
: For each of the following transactions, check the boxes for all possible hedging techniques:
|
|
Explain significance of tv as entertainment
: Explain Significance of TV as entertainment, TV as a marketing tool, In Living Color: The advent of color TV, TV as socialization agent and TV as the source of "truth".
|
|
Major stock exchanges in the united states
: Select a major industrial or commercial company based in the United States and listed on one of the major stock exchanges in the United States.
|
|
Business situation in which you would use geos
: Justify the circumstances in a business situation in which you would use GEOS, LEOS, and MEOS
|
|
Firm funds investment projects
: Suppose that when the firm funds investment projects it is committed to a policy of selling equity. Thus, if they fund the original project at t=0 or the followup project at t=1 they will sell new equity. What will the market value of old equity ..
|
|
Do you believe was the most effective in terms of strategy
: What American/Colonial commander, covered in the course, do you believe was the most effective in terms of strategy and logistics and why? Support your answer with specific details and explanations.
|
|
Explain history of their nation as one of continual progress
: Many Americans like to imagine the history of their nation as one of continual progress. While acknowledging that not all persons and groups enjoyed equal rights at all times.
|
|
Identify information systems requirements
: Analyze internal and external business processes to identify information systems requirements
|
|
Development and marketing of products
: Development and marketing of products can be the role of any business manager. As a business manager, you should think about product development
|