Questions from Corporate Finance

Q: Omega Airline ’ s capital structure consists of 2.7 million

Omega Airline ’ s capital structure consists of 2.7 million shares of common stock and zero coupon bonds with a face value of $18 million that mature in six months. The firm just announced that it wil...

Q: Kevin Nomura is a Japanese student who is planning a one year

Kevin Nomura is a Japanese student who is planning a one year stay in the United States. He expects to arrive in the United States in eight months. He is worried about depreciation of the yen relative...

Q: A company has a large bond issue maturing in one year.

A company has a large bond issue maturing in one year. When it matures, the company will float a new issue. Current interest rates are attractive, and the company is concerned that rates next year wil...

Q: Suppose there were call options and forward contracts available on coal,

Suppose there were call options and forward contracts available on coal, but no put options. Show how a financial engineer could synthesize a put option using the available contracts. What does your a...

Q: Mojito Mint Company has a debt–equity ratio of .35

Mojito Mint Company has a debt–equity ratio of .35. The required return on the company’s unlevered equity is 13 percent, and the pretax cost of the firm’s debt is 7 percent. Sales revenue for the comp...

Q: Return to the case of the diagnostic scanner discussed in Problems 1

Return to the case of the diagnostic scanner discussed in Problems 1 through 6. Suppose the entire $5,200,000 purchase price of the scanner is borrowed. The rate on the loan is 8 percent, and the loan...

Q: A put and a call have the same maturity and strike price

A put and a call have the same maturity and strike price. If they have the same price, which one is in the money? Prove your answer and provide an intuitive explanation.

Q: Lone Star Industries just issued $235,000 of perpetual 8

Lone Star Industries just issued $235,000 of perpetual 8 percent debt and used the proceeds to repurchase stock. The company expects to generate $118,000 of earnings before interest and taxes in perpe...

Q: Frostbite Thermalwear has a zero coupon bond issue outstanding with a face

Frostbite Thermalwear has a zero coupon bond issue outstanding with a face value of $30,000 that matures in one year. The current market value of the firm’s assets is $36,400. The standard deviation o...

Q: High electricity costs have made Farmer Corporation’s chicken plucking machine economically worthless

High electricity costs have made Farmer Corporation’s chicken plucking machine economically worthless. Only two machines are available to replace it. The International Plucking Machine (IPM) model is...