Questions from Corporate Finance

Q: Calculate and compare the risk (betas) of the following investments

Calculate and compare the risk (betas) of the following investments: (a) a share of Amazon stock; (b) a one-year call option on Amazon; (c) a one-year put option; (d) a portfolio consisting of a share...

Q: Respond to the following comments. a. “You don’t

Respond to the following comments. a. “You don’t need option pricing theories to value flexibility. Just use a decision tree. Discount the cash flows in the tree at the company cost of capital.” b. “...

Q: Alert financial managers can create real options. Give three or four

Alert financial managers can create real options. Give three or four possible examples.

Q: True or false? a. A firm that earns the

True or false? a. A firm that earns the opportunity cost of capital is earning economic rents. b. A firm that invests in positive-NPV ventures expects to earn economic rents. c. Financial managers sho...

Q: Describe each of the following situations in the language of options:

Describe each of the following situations in the language of options: a. Drilling rights to undeveloped heavy crude oil in Northern Alberta. Development and production of the oil is a negative-NPV end...

Q: Look back at the Malted Herring option in Section 22-2

Look back at the Malted Herring option in Section 22-2. How did the company’s analysts estimate the present value of the project? It turns out that they assumed that the probability of low demand was...

Q: Flip back to Tables 6.2 and 6.3,

Flip back to Tables 6.2 and 6.3, where we assumed an economic life of seven years for IM&C’s guano plant. What’s wrong with that assumption? How would you undertake a more complete analysis?

Q: Take another look at the perpetual crusher example in Section 22-

Take another look at the perpetual crusher example in Section 22-3. Construct a sensitivity analysis showing how the value of the abandonment put changes depending on the standard deviation of the pro...

Q: Construct a sensitivity analysis of the value of the pharmaceutical R&

Construct a sensitivity analysis of the value of the pharmaceutical R&D project described in Figure 22.8. What input assumptions are most critical for the NPV of the project? Be sure to check the inpu...

Q: In February 2018, Aaa bonds yielded 3.38%, Baa

In February 2018, Aaa bonds yielded 3.38%, Baa bonds yielded 4.51%, and comparable Treasuries yielded 2.86%. a. What was the credit spread on Aaa bonds? b. What was the spread on Baa bonds? c. What do...