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Permian Partners (PP) produces from aging oil fields in west Texas. Production is 1.92 million barrels per year in 2016, but production is declining at 9% per year for the foreseeable future. Costs of production, transportation, and administration add up to $26.20 per barrel. The average oil price was $66.20 per barrel in 2016. PP has 8.2 million shares outstanding. The cost of capital is 11%. All of PP’s net income is distributed as dividends. For simplicity, assume that the company will stay in business forever and that costs per barrel are constant at $26.20. Also, ignore taxes. a. Assume that oil prices are expected to fall to $61.20 per barrel in 2017, $56.20 per barrel in 2018, and $51.20 per barrel in 2019. After 2019, assume a long-term trend of oil-price increases at 7% per year. What is the ending 2016 value of one PP share? (Do not round any calculations) Share value2016 $ b-1. What is PP’s EPS/P ratio? (Do not round any calculations) EPS/P ratio b-2. Is it equal to the 11% cost of capital?
Determine whether the interest rate parity is currently holding. b. If the IRP is not holding, how would you carry out covered interest arbitrage?
what is the price range of houses that they should consider when the local mortgage rate for this type of loan is 5%/year compounded monthly?
what is the profit/loss on the un-hedged SPY position and on the hedged position?
You purchased one of Big Corp.’s 8%, 10-year convertible bonds at its $1,000 par value a year ago when the company’s common stock was selling for $20. Similar bonds without a conversion feature returned 12% at the time. What would your return have be..
The year is 2017 and you currently manage the investment portfolio for a large corporation, you currently hold $50 million 5 3/8% Treasury bonds that mature in 2025. You expect interest rates to rise over the next year ad want to hedge your position...
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Suppose that Neilson’s Restaurants has a liability exposure with expected loss payment equal to $3 million this year, $3 million next year, and $1 million in two years. What is the present value of the expected tax shield arising from Neilson’s liabi..
Your friend suggests that a good way to study whether stock prices are informationally efficient is to analyze whether mutual fund managers can earn abnormal returns. Should her study examine the performance of fund managers gross of expenses or net ..
How long will it take for the two investments to be worth exactly the same amount?
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Carlisle Company has been cited and must invest in equipment to reduce stack emissions or face EPA fines of $18,500 per year. An emission reduction filter will cost $75,000 and have an expected life of 5 years. Carlisle’s MARR is 10 %/year. What is t..
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