What is value of put option on one carel industries share

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Reference no: EM132947775

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Question 1: a) Finance Manager Company Y states like this: "Although the project does not have the same risk as the firm, its relevant cost of capital should be equal to the firm's WACC because the firm's shareholders and debtholders are paid with cash from the firm's cash flows, not from the project's cash flow." State if this statement is TRUE or FALSE and why?

b) Explain how to calculate the cost of equity for common and preferred shares.

Question 2: a. Frankfurt Euroshop AG shares are currently selling for €12. Over the next year, the company is undertaking a new supermarket project. If the project is successful, the company's shares are expected to rise to €24. If the project fails, the shares are expected to fall to €8. The risk free interest rate is 6 per cent. Calculate the value today of a one-year call option on one Frankfurt Euroshop share with a strike price of €20?

b. Carel Industries is an Italian company that organizes trade fairs and is listed on the Milan Stock Exchange. The company's shares are currently trading at €50. Depending on the outlook for the economy and the demand for trade conferences, the company's share price is expected to be either €65 or €30 in six months. The risk-free interest rate is 8 per cent per year. What is the value of a put option on one Carel Industries' share that has a €40 strike price?

Reference no: EM132947775

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