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Assume that the price of Microsoft stock is currently $25 a share. Also suppose that the excercise price for the Microsoft stock options is $25 a share for both put and call; the call price is $3 a share and put price is also $3 a share. Both options expire in 1 year. You would like to obtain a maximum profit from your firm view that the price of Microsoft stock will not move by more than $6 either up or down over the next year. Assume that both options can only be excercised on expiration date. (a) Assume your view is correct. Describe your position in these options. Given your answer in part a answer parts b, c, d and e about the combined position. (b) What is your total profit or loss per share if the stock price stays at $25 at expiration? (c.) Suppose your view did not turn out to be correct and the stock price dropped to $5 at expiration. What is your total profit or loss per share? (d) Suppose your view did not turn out to be correct and the stock price increased to $31 at expiration. What is your total profit or loss per share? (e) Below draw the per share profit profile for each of the options you've selected in part a and their combined profit at expiration (label each axis, each profile and all breakeven points)
Calculating Annuities You are planning to save for retirement over the next 30 years. To do this, you will invest $750 per month in a stock account and $250 per month in a bond account. Treasury Bonds Is it true that a U.S. Treasury security is risk-..
A company wants to select the most economical site for a new factory. Find all of the crossover quantities
Assume that as of today the annualized two year interest rate is 12 percent and one year interest rate is 9 percent. A three year security has an annualized interest rate of 14 percent. Based on the pure expectation theory, what is the one year forwa..
Fine Press is considering replacing the existing press with a more efficient press. The new press costs $55,000 and requires $5000 in installation costs. The old press was purchased 2 years ago for an installed cost of $35,000 and can be sold for $20..
A firm has an expected perpetual EBIT = $6,000. The unlevered cost of capital = 8% and there are 20,000 shares of stock outstanding. The firm is considering issuing $10,000 in new par bonds to add financial leverage to the firm. The proceeds of the d..
Operating income (EBIT) $600 million, Interest expense $0, Tax rate 35%, Debt $0, Cost of equity 7%, WACC 7% . The company has no growth opportunities (g = 0), so the company pays out all of its earnings as dividends.
The staff of Jefferson Medical Services has estimated the following net cash flows for a food services operation that it may open in its outpatient clinic: What are the worst case and best case IRRs? The worst case and best NPVs?
An investment has an installed cost of $567,382. The cash flows over the four-year life of the investment are projected to be $196,584, $240,318, $188,674, and $156,313. Requirement 1: If the discount rate is zero, what is the NPV?
You wrote a piece of software that does a better job of allowing computers to network than any other program designed for this purpose. If the appropriate interest rate is 6 percent, what is the present value of the cash flow stream that the company ..
A firm has 20 year $5 million of debt which was acquired 2 years ago and is currently selling at 115% of par value. The debt has a coupon rate of 7% and the current tax rate is 35%. What is the before tax cost of debt?
The cost of raising capital through retained earnings is _____________ (a. less than, b. greater than) the cost of raising capital through issuing new common stock. The current risk-free rate of return is 3.8%. The market risk premium is 6.1%. D'Amic..
Cash Flow Statement Disclosure You have been hired as a staff accountant by a small company that recently completed an initial public offering (IPO) of its common stock. At its inception, the company had been ?nanced by Pegasus, an investment group. ..
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