CHAPTER 14 OPTIONS AND CORPORATE FINANCE Answers to Concepts Review and Critical Thinking Questions 1. A call option confers the right‚ without the obligation‚ to buy an asset at a given price on or before a given date. A put option confers the right‚ without the obligation‚ to sell an asset at a given price on or before a given date. You would buy a call option if you expect the price of the asset to increase. You would buy a put option if you expect the price of the asset to decrease. A
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Equations Reducible to Quadratic Equations Exercise 4.2 Solve the following equations: 1. x 4 − 6 x 2 + 8 = 0 Solution: x4 − 6 x2 + 8 = 0 Let y = x 2 and y 2 = x 4 The above equation becomes: y 2 − 6 y + 8 = 0 y2 − 6 y + 8 = 0 y2 − 4 y − 2 y + 8 = 0 y ( y − 4) − 2( y − 4) = 0 ( y − 2)( y − 4) = 0 y − 2 = 0 and y − 4 = 0 y=2 y=4 2 As‚ y = x x2 = 2 x2 = 4 x = ±2 x=± 2 solution set = { 2‚ − 2‚ 2‚ −2} 2. x −2 − 10 = 3 x−1 Solution: x −2 − 10 = 3 x −1 x −2 − 3 x −1 − 10 = 0 Let
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/MiddSuppose that in the coming year‚ you expect Exxon-Mobil stick to have a volatility of 42% and a beta of 0.9‚ and Merck ’s stock to have a volatility of 24% and a beta of 1.1. The risk free interest rate is 4% and the markets expected return is 12%. The cost of capital for a project with the same beta as Merck ’s stock is closest to: . | d. 12.8% | E[R] = Rf + Beta × Risk Premium = .04 + 1.1 × (.12 - .04) = .128 | Which stock has the highest total risk? | c. Exxon-Mobil since it has
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the firm and its investors wealthier. This point is one of the central and most powerful ideas in finance‚ which we call the Valuation Principle: The value of an asset to the firm or its investors is determined by its competitive market price. The benefits and costs of a decision should be evaluated using these ©2011 Pearson Education 20 Berk/DeMarzo • Corporate Finance‚ Second Edition market prices‚ and when
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liability‚ and list firm types that are subject to each. 3. Describe taxation consequences for C and S corporate forms. Copyright © 2007 Pearson Addison-Wesley. All rights reserved. 1-3 Learning Objectives (cont’d) 4. Discuss the division of corporate ownership into shares of stock; evaluate the implications of that division for corporate decision making. 5. Explain how corporate bankruptcy can be viewed as a change in firm ownership. 6. Compare and contrast characteristics of shares
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Q1. Accounting is one of the oldest‚ structured management information system. Give the meaning of accounting and book keeping? Explain the objectives of accounting? A1. Accounting : Accounting is the analysis and interpretation of book-keeping records. It includes not only the maintenance of accounting records but also the preparation of financial and economic information which involves the measurement of transactions and other events relating to the entity. Accounting is defined as "the art
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COMPANY: TRAPHACO JOIN STOCK COMPANY (TRA) DOMESCO MEDICAL IMPORT-EXPORT JOIN STOCK COMPANY (DMC) HAUGIANG PHARMACEUTICAL JOIN STOCK COMPANY (DHG) IMEXPHARM PHARMACEUTICAL JOIN STOCK COMPANY (IMP) gROUP PHARMACEUTICAL: truong quang khoa huynh minh tri Cao huynh ngoc khanh huynh le phuong thao ngo thi ngoc anh to ha cat anh Contents 1 INTRODUCTION 1.1 INDUSTRIAL OVERVIEW Pharmaceutical industry is an important sector in the national economy‚ the production of functional
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Sample Test Problems 9.1 Which type of secondary market provides the most efficient market for securities? 9.2 Is preferred stock classified as debt or equity? 9.3 Burnes‚ Inc. is a mature firm that is growing at a constant rate of 5.5 percent per year. The firm’s last dividend was $1.50. If the required rate of return is 12 percent‚ what is the market value of this stock assuming dividend growth equals the growth rate of the firm? 9.4 Abacus Corp. will pay dividends of $2.25‚ $2.95 and $3.15
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Solutions to Practice Problems by Kyung Hwan Shim University of New South Wales Australian School of Business School of Banking & Finance for FINS 3625 S1 2010 May 23‚ 2010 ∗ These notes are preliminary and under development. They are made available for FINS 3625 S1 2010 students only and may not be distributed or used without the author’s written consent. ∗ 1 Solution for Question 1 Summary Table of Cash Flows t=0 I II CF from Machinery ignoring depreciation Working Capital Level
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3rd Speaker Good afternoon Chairman and panel‚ ladies and gentlemen. The topic for discussion is “Science drives Technology”‚ clearly my team is here to today to negate that statement to indicate to you that it is not science which drives technology but the other way around. People often confuse science and technology. Briefly‚ scientists (science) discover new aspects of Nature. Engineers and inventors (technology) use scientific discoveries to design and build new things. Scientific endeavors
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