Finc 5880 week 5 mid-term examination 36096

Question
Question 1. (10 points) The exercise price on one of ORNE Corporation’s call options is $35 and the
price of the underlying stock is $34. The option will expire in 55 days. The option is currently selling
for $0.25.
a. Calculate the option’s exercise value?

Don't use plagiarized sources. Get Your Custom Essay on
Finc 5880 week 5 mid-term examination 36096
Just from $13/Page
Order Essay

b. Calculate the value of the premium over and above the exercise value? What does
this value represent?

c. Is this an out-of-the money option, at-the-money, or in-the-money? Why?

d. What will happen to the value of the option if the underlying stock price changes to $34.50?
Why?

e. If this were a put option, would it have a greater or lesser value than the call option? Why?

Question 2. (15 points) The Reuth Company is evaluating the proposed acquisition of a new machine. The

machine’s base price is $600,000 plus shipping costs of $20,000. The machine falls into the MACRS 3-year

class (use factors .33, .45, .15, .07), and it would be sold after 5 years for $10,000. The machine would require

an increase in net working capital of $25,000. The machine would have no effect on revenues, but it is

expected to save the firm $200,000 per year for 5 years in before-tax operating costs. . Campbell’s marginal tax

rate is 35 percent and its cost of capital is 13 percent.
 a. Calculate the cash outflow at time zero.

b. Calculate the net operating cash flows for Years 1 through 5

 c. Calculate the terminal year cash flow.

 d. Calculate NPV. Should the machinery be purchased? Why or why not?

Question 3. (15 points) A company estimates the following free cash flows (FCFs) during the next 3 years, after which FCF
is expected to grow at a constant 6% rate. The company’s cost of capital is 12%. the company has $3 million in marketable
securities, $50 million in debt, and 10 million shares of stock.

Year
Free cash flow ($ millions)

1
-5

2
15

3
30

a. Calculate the company’s horizon, value?

b. Calculate the company’s current value of operations.

c. Calculate the value of one share of share?

d. The stock is selling for $32.50. Is it appropriately priced in the market? Explain.

Page 3 of 4

05/18/2013

Mid-Term Examination
FINC 5880
Week 5
Question 6. (15 points) Epoty Corporation is evaluating whether to lease or
purchase needed equipment at a cost of $10,000. If the equipment is leased, the
lease would not have to be capitalized. The company’s balance sheet prior to the
acquisition of the equipment is as follows.
a. Calculate the company’s current debt ratio?
Equipment cost
Current assets
Net Fixed assets
Total assets

$10,000
Current Balance Sheet
$50,000
Debt
40,000
Equity
$90,000
Total claims

$35,000
55,000
$90,000

b. Calculate the company’s debt ratio if it purchases the equipment.

c. Calculate the company’s debt ratio if it leases the equipment?

d.

Will the company’s ROA and ROE ratios be affected by its decision to lease
or purchase? Why or why not?

e. What factors should the company consider in coming to its decision other
than net advantage to leasing? Why?

Place Order
Grab 16% Discount On This Paper
Pages (550 words)
Approximate price: -

Why Choose Us

Quality Papers

We value our clients. For this reason, we ensure that each paper is written carefully as per the instructions provided by the client. Our editing team also checks all the papers to ensure that they have been completed as per the expectations.

Professional Academic Writers

Over the years, MyEssay.Help has managed to secure the most qualified, reliable and experienced team of writers. The company has also ensured continued training and development of the team members to ensure that it keep up with the rising Academic Trends.

Affordable Prices

Our prices are fairly priced in such a way that ensures affordability. Additionally, you can get a free price quotation by clicking on the "Place Order" button.

On-Time delivery

We pay strict attention on deadlines. For this reason, we ensure that all papers are submitted earlier, even before the deadline indicated by the customer. For this reason, the client can go through the work and review everything.

100% Originality

At MyEssay.help, all papers are plagiarism-free as they are written from scratch. We have taken strict measures to ensure that there is no similarity on all papers and that citations are included as per the standards set.

Customer Support 24/7

Our support team is readily available to provide any guidance/help on our platform at any time of the day/night. Feel free to contact us via the Chat window or support email: support@myessay.help.

Try it now!

Grab 16% Discount On This Paper

We'll send you the first draft for approval by at
Total price:
$0.00

How it works?

Follow these simple steps to get your paper done

Place your order

Fill in the order form and provide all details of your assignment.

Proceed with the payment

Choose the payment system that suits you most.

Receive the final file

Once your paper is ready, we will email it to you.

Our Services

MyEssay.help has stood as the world’s leading custom essay writing services providers. Once you enter all the details in the order form under the place order button, the rest is up to us.

Essays

Essay Writing Services

At MyEssay.help, we prioritize on all aspects that bring about a good grade such as impeccable grammar, proper structure, zero-plagiarism and conformance to guidelines. Our experienced team of writers will help you completed your essays and other assignments.

Admissions

Admission and Business Papers

Be assured that you’ll definitely get accepted to the Master’s level program at any university once you enter all the details in the order form. We won’t leave you here; we will also help you secure a good position in your aspired workplace by creating an outstanding resume or portfolio once you place an order.

Editing

Editing and Proofreading

Our skilled editing and writing team will help you restructure you paper, paraphrase, correct grammar and replace plagiarized sections on your paper just on time. The service is geared toward eliminating any mistakes and rather enhancing better quality.

Coursework

Technical papers

We have writers in almost all fields including the most technical fields. You don’t have to worry about the complexity of your paper. Simply enter as much details as possible in the place order section.

                                                                                     Place Order