Finance Worksheet Essay

796 words - 4 pages

1.
Date Price Dividend Stock Split Market Return Slope=beta 31-Jan-84 17.625 -0.01291 2.62328832 29-Feb-84 15 0.05 -0.03917 30-Mar-84 14.875 0.01345 30-Apr-84 17.125 0.00273 31-May-84 17.375 -0.05235 29-Jun-84 18 0.05 0.02359 31-Jul-84 14.75 -0.02035 31-Aug-84 18 0.05 0.11257 28-Sep-84 17 0.00039 31-Oct-84 17.875 0.00013 30-Nov-84 15.25 0.05 -0.01062 31-Dec-84 15.5 0.02379 31-Jan-85 23.375 0.08573 28-Feb-85 23.75 0.11 0.017 29-Mar-85 23.125 -0.00193 30-Apr-85 20.625 -0.00218 31-May-85 22.625 0.06 0.05587 28-Jun-85 24 0.01719 31-Jul-85 24.125 -0.00054 30-Aug-85 22.875 0.06 -0.0048 30-Sep-85 20.125 -0.03965 31-Oct-85 22.25 0.04457 29-Nov-85 25.5 0.06 0.06927 31-Dec-85 32.5 0.04306 31-Jan-86 36.375 0.00986 Cost of equity - capital asset pricing model 28-Feb-86 39.125 0.17 0.07284 31-Mar-86 39 0.05388 Re = rf + (rm – rf) * β 30-Apr-86 30.375 ...view middle of the document...

6232883 20.74% (0.05+0.06)*2.6232

0.05 (Given) 0.06 (Given)

2a Unlevered Beta

Where: BL is the firm's beta with leverage. Tc is the corporate tax rate. D/E is the company's debt/equity ratio.

0.36

BU BL

When D/E is 60%, levered beta is So, Unlevered beta Levered beta when D/E = 70% is

1.42 0.72 1.05

(given) 1.42/1+(60/40)*(1-0.36))

2b. 10.41% 59%*(13%)+41%*(11%)*(1-36%)

Where: WACC Weighted Average Cost Of Capital Re = cost of equity Rd = cost of debt E/V = percentage of financing that is equity D/V = percentage of financing that is debt Tc = corporate tax rate Source Re

13% 11% 59% 41% 36%

http://www.investopedia.com/terms/w/wacc.asp 13%

7.00% 1.05

Rm - Rf

5.5%

Source

http://www.investopedia.com/terms/c/capm.asp

3 Statement showing profit/loss: Stock Price at Expiration Portfolio profit 78.00 $85-$78-$3.25 80.00 $85-$80-$3.25 86.00 $86-$87-$3.25 90.00 $90-$87-$3.25 92.00 $92-$87-$3.25

= = = = =

3.75 1.75 -4.25 -0.25 1.75

In the money In the money Out of money Out of money Out of money

4 Value of call option by using Black Scholes model: rRF = t= X= P= s2 = Risk-free interest rate Time until the option expires Exercise price Current price of the underlying stock Variance of the stock's rate of return rRF = t= X= P= s2 = d1 = d2 = N(d1)= N(d2)= V = 0.02 0.13 10.00 11.00 0.10 (ln(P/X)+((rRF+(s2 /2))*t))/((s 2 ^(1/2))*(t^1/2 )) = d1 -((s2^(1/2))*(t^1/2 )) = = = P[ N (d1) ] - Xe -rRF t [ N (d2) ] = 0.9307 0.8189 0.8240 0.7936 1.1480

5a. 11.10%

Where: WACC Weighted Average Cost Of Capital Re = cost of equity Rd = cost of debt E = market value of the firm's equity D = market value of the firm's debt V =E+D E/V = percentage of financing that is equity D/V = percentage of financing that is debt Tc = corporate tax rate Source Re

13% 8%

given

80% 20% 40%

given given given

http://www.investopedia.com/terms/w/wacc.asp 13%

7% 1.150

given given

Rm - Rf Source

5%

given

http://www.investopedia.com/terms/c/capm.asp

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