A decrease in the price of toothpaste in a tube can lead to a decrease in the purchase of toothpaste in a pump. This means:
1 answer:
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Answer:
$98.02
Explanation:
Data provided in the question:
Value of contract = $1,330
Maximum value = $86
Minimum value = $65
Exercise price = $78
Risk-free rate = 3%
Now,
Current value of stock =
also,
a standard contract has 100 shares
thus,
Call price = Value of contract ÷ 100 shares
or
Call price = $1,330 ÷ 100 = $13.30
Thus,
Current value of stock =
or
Current value of stock = ( 2.625 × $13.30 ) + $63.1068
= $98.0193 ≈ $98.02
Answer:
Re = 16.02%
Explanation:
current stock price 36 x 7,660,000 = 275,760,000
cost of equity = 17.5%
current short term debt = 141,600,000
cost of short term debt = 8.5%
current long term debt = 210,600,000
cost of long term debt = 10.5%
total financing = 627,960,000
- equity = 275,760,000 / 627,960,000 = 0.4391
- short term debt = 141,600,000 / 627,960,000 = 0.2255
- long term debt = 210,600,000 / 627,960,000 = 0.3354
WACC = (0.4391 x 0.175) + (0.2255 x 0.085 x 0.75) + (0.3354 x 0.105 x 0.75) = 0.0768 + 0.0144 + 0.0264 = 0.1176 or 11.76%
under the new structure:
total financing = 627,960,000
- equity = 325,760,000 / 627,960,000 = 0.5188
- short term debt = 141,600,000 / 627,960,000 = 0.2255
- long term debt = 160,600,000 / 627,960,000 = 0.2557
assuming WACC remains unchanged:
0.1176 = (0.5188 x Re) + (0.2255 x 0.085 x 0.75) + (0.2557 x 0.105 x 0.75) = (0.5188 x Re) + 0.0144 + 0.0201 = (0.5188 x Re) + 0.0345
0.5188 x Re = 0.1176 - 0.0345 = 0.0831
Re = 0.0831 / 0.5188 = 0.1602 or 16.02%
