• Q : Maximum possible gain and loss....
    Finance Basics :

    Calculate your current profit, and your maximum possible gain and loss. Now assume that you buy a put option to protect your position. Your put has a strike price of $69 per share, maturity of 6 mont

  • Q : Determining time value of put option....
    Finance Basics :

    Use Black Scholes option valuation to find the value of a put option with a strike price of $20, a risk free rate of 8%, variance of returns = 36%, an expiration date six months from now, given tha

  • Q : Determining cost of equity-wacc....
    Finance Basics :

    Malkin Corp. has no debt but can borrow at 6.5%. The firm's WACC is currently 10%, and there is no corporate tax.

  • Q : Call premium of the bond....
    Finance Basics :

    Consider a bond with a 6.1 percent coupon rate and a yield to call of 7 percent. The bond currently sells for $1,103. If the bond is callable in 5 years, what is the call premium of the bond?

  • Q : Determining the total return on investment....
    Finance Basics :

    You bought a share of Bavarian Sausage stock for $46.50 at the beginning of the year. During the year the stock paid a $2.75 dividend and at the end of the year it trades at $44.75. What is the tota

  • Q : Describe the pattern and the type of risk....
    Finance Basics :

    A company has a bond issue outstanding that pays $150 annual interest plus $1000 at maturity. The bond has a maturity of 10 years. Compute the value of the bond when the interest rate is 5%, 9%, an

  • Q : Estimating bonds current yield....
    Finance Basics :

    Suppose a corporation's bonds have a current market price of $1400. The bonds have a 13% annual coupon rate, a $1000 face value, and 10 years left until maturity. The bonds may be called in 5 years

  • Q : Market price of the bonds....
    Finance Basics :

    Compute the market price of the bonds if interest is paid annually. Compute the market price of the bonds if interest is paid semiannually.

  • Q : Project coefficient of variation....
    Finance Basics :

    Assume the best case scenario NPV is 50% higher than the base case and assume the worst case scenario NPV is 25% lower than the base case. Both the best case scenario and the worst case scenario hav

  • Q : Estimating project initial investment outlay....
    Finance Basics :

    Truman Industries is considering an expansion project. The necessary equipment could be purchased for $9 million, and the project would also require an initial $3 million investment in net working c

  • Q : Investment cash flows....
    Finance Basics :

    Six Twelve is considering opening up a new convenience store in downtown New York City. The expected annual revenue is $800,000. To estimate the increase in working capital,

  • Q : Determining company cash conversion cycle....
    Finance Basics :

    Your boss asks you to compute the company's cash conversion cycle. Looking at the financial statements, you see that the average inventory for the year was $126,300, accounts receivable were $97,900

  • Q : Computing terminal-year fcf....
    Finance Basics :

    Healthy Potions, Inc., a pharmaceutical company, bought a machine that produces pain-reliever medicine at a cost of $2 million five years ago.. The machine has been depreciated over the past five ye

  • Q : Agency theory concepts....
    Finance Basics :

    Using agency theory concepts, explain how restrictive covenants that forbid leases and liens on a firm's assets might cause the firm to achieve a higher rating on its bonds than would be possible wi

  • Q : Characteristic of absorption costing....
    Finance Basics :

    What characteristic of absorption costing caused the drop in net operating income for the second quarter and what could the controller have said to explain the problem?

  • Q : Downward adjustment on net income....
    Finance Basics :

    You have built a model for a company you are analyzing, but realize that you mistakenly entered $100 million in depreciation instead of the correct value of $110 million. Assuming a 20% tax rate, w

  • Q : Net present value of granting credit....
    Finance Basics :

    You estimate that Salt Lake has a 95% probability of paying you on time, which is in three months, and a 5% probability of paying nothing. If the opportunity cost of funds is 18% per year, what is t

  • Q : Describing formal line of credit....
    Finance Basics :

    Winegartner Cosmetics is setting up a line of credit at its bank for $5 million for up to two years. The interest rate is 5.875 percent and the loan agreement calls for an annual fee of 40 basis poi

  • Q : Estimating effective interest rate....
    Finance Basics :

    Morgan Contractors borrowed $1.75 million at an APR of 10.2 percent. The loan called for a compensating balance of 12 percent. What is the effective interest rate on the loan?

  • Q : Determining the holding period return....
    Finance Basics :

    Joe purchased 800 shares of Robotics Stock at $3 per share on 1/1/09. Bill sold the shares on 12/31/09 for $3.45. Robotics stock has a beta of 1.9, the risk-free rate of return is 4%, and the market

  • Q : How long the capital shortfall may last and why....
    Finance Basics :

    Assess the short-term and long-term effects of the limited capital that is currently available, especially since banks are increasingly reluctant to make loans. Speculate on how long the capital sho

  • Q : Coupon interest rate-dollar coupon....
    Finance Basics :

    What coupon interest rate, and dollar coupon, must the company set on the bonds with warrants if they are to clear the market?

  • Q : Determine wacc without debt and equity betas....
    Finance Basics :

    What is the weighted average cost of capital if the after tax cost of debt is 9% and the cost of equity is 14%? A. B. C. D. E. 7.98% 10.875% 11.000% 12.125% It is impossible to determine WACC withou

  • Q : National approaches and incremental approaches to budgeting....
    Finance Basics :

    Distinguish between national approaches and incremental approaches to budgeting.

  • Q : Determining future value of a lump sum....
    Finance Basics :

    Present values are negatively impacted by higher interest rates. How does compounding compare with discounting? How does the future value of an annuity compare with the future value of a lump sum?

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