A gold-mining firm is concerned about short-term volatility in its revenues. Gold currently sells for $1,550 an ounce, but the price isextremely volatile and could fall as low as $1,450 or rise as high as $1,650 in the next month. The company will bring 1,350 ounces ofgold to the market next month.a. What will be the total revenues if the firm remains unhedged for gold prices of (i) $1,450, (ii) $1,550, and (iii) $1,650 an ounce?i.At $1,450 an ouncei.At $1,550 an ounceiii.At $1,650 an ounceb. The futures price of gold for delivery 1 month ahead is $1,570. What will be the firm's total revenues if the firm enters into a 1-monthfutures contract to deliver 1,350 ounces of gold?Total revenuesc. What will be the total revenues if the firm buys a 1-month put option to sell gold for $1,350 an ounce? The put option costs $37 perounce.Total revenues

Hedging is referred to as a strategy that is used to reduce the investment risk by using derivatives…

A gold-mining firm is concerned about short-term volatility in its revenues. Gold currently sells for $1,550 an ounce, but the price is extremely volatile and could fall as low as $1,450 or rise as high as $1,650 in the next month. The company will bring 1,350 ounces of gold to the market next month. a. What will be the total revenues if the firm remains unhedged for gold prices of (i) $1,450, (ii) $1,550, and (iii) $1,650 an ounce? i. At $1,450 an ounce ii. At $1,550 an ounce i. At $1,650 an ounce b. The futures price of gold for delivery 1 month ahead is $1,570. What will be the firm's total revenues if the firm enters into a 1-month futures contract to deliver 1,350 ounces of gold? Total revenues c. What will be the total revenues if the firm buys a 1-month put option to sell gold for $1,350 an ounce? The put option costs $37 per ounce. Total revenues

A gold-mining firm is concerned about short-term volatility in its revenues. Gold currently sells for $1,550 an ounce, but the price is extremely volatile and could fall as low as $1,450 or rise as high as $1,650 in the next month. The company will bring 1,350 ounces of gold to the market next month. a. What will be the total revenues if the firm remains unhedged for gold prices of (i) $1,450, (ii) $1,550, and (iii) $1,650 an ounce? i. At $1,450 an ounce ii. At $1,550 an ounce i. At $1,650 an ounce b. The futures price of gold for delivery 1 month ahead is $1,570. What will be the firm's total revenues if the firm enters into a 1-month futures contract to deliver 1,350 ounces of gold? Total revenues c. What will be the total revenues if the firm buys a 1-month put option to sell gold for $1,350 an ounce? The put option costs $37 per ounce. Total revenues

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

See similar textbooks

Similar questions

Hollywood Shoes would like to maintain their cash account at a minimum level of $67,000, but expect the standard deviation in net daily cash flows to be $5,700; the effective annual rate on marketable securities to be 6.50 percent per year; and the trading cost per sale or purchase of marketable securities to be $270 per transaction. What will be their optimal cash return point? (Round your answer to 2 decimal places.)
Suppose Goodyear Tire and Rubber Company is considering divesting one of its manufacturing plants. The plant is expected to generate free cash flows of 51.54 million per year, growing at a rate of 2.4% per year. Goodyear has an equity cost of capital of 8,7%, a debt cost of capital of 6.7%, a marginal corporate tax rate of 38%, and a debt- equity ratio of 2.6. If the plant has average risk and Goodyear plans to maintain a constant debt equity ratio, what after tax amount must it receive for the plant for the divestiture to be profitable?
assume that $1 one year from now is worth $0.90 today, and $1 two years from now is worth $0.75 today. Dollars can be bought and sold at these prices. There are no transaction costs.A firm anticipates that it will have a surplus of dollars one year from now but a shortage two years from now. The present value of the surplus of dollars that is forecast for one year from now is $2,000. What is the amount of the surplus in terms of dollars available in one year?
he conventional payback period ignores the time value of money, and this concerns Cold Goose’s CFO. He has now asked you to compute Sigma’s discounted payback period, assuming the company has a 10% cost of capital. Complete the following table and perform any necessary calculations. Round the discounted cash flow values to the nearest whole dollar, and the discounted payback period to two decimal places. For full credit, complete the entire table. (Note: If your answer is negative, be sure to use a minus sign in your answer.) Year 0 Year 1 Year 2 Year 3 Cash flow -$5,000,000 $2,000,000 $4,250,000 $1,750,000 Discounted cash flow Cumulative discounted cash flow Discounted payback period: years Which version of a project’s payback period should the CFO use when evaluating Project Sigma, given its theoretical superiority? The discounted payback period The regular payback period One…
Maxwell Mining Company's ore reserves are being depleted, so its sales are falling. Also, because its pit is getting deeper each year, its costs are rising. As a result, the company's earnings and dividends are declining at the constant rate of 8% per year. If Do $5 and rs = 17%, what is the value of Maxwell Mining's stock? Round your answer to the nearest cent. $
Maxwell Mining Company's ore reserves are being depleted, so its sales are falling. Also, because its pit is getting deeper each year, its costs are rising. As a result, the company's earnings and dividends are declining at the constant rate of 9% per year. If D0 = $5 and rs = 14%, what is the value of Maxwell Mining's stock? Round your answer to the nearest cent.
Kale Inc. forecasts the free cash flows (in millions) shown below. Assume the firm has zero non-operating assets. If the weighted average cost of capital is 11.0% and FCF is expected to grow at a rate of 4.0% after Year 2, then what is the firm’s total corporate value (in millions)? Do not round intermediate calculations. Year0 FCF -$40 Year 1 FCF $150
A small company owns an oil well. Initially revenues and dividends are expected to grow while the oilwell is being developed. It is then expected to slowly decline as it dries up until it shuts down.An annual dividend of $1.80 has just been paid. Dividends are expected to grow by 15% p.a. until t=6.Dividends are then expected to decline by 1.5% p.a. until t=25 when the well is expected to shut down.a. What is the dividend expected to be in 12 year’s time? b. What is the share price today if the shares are priced at 11.5% p.a.?
The Purple Lion Beverage Company expects the following cash flows from its manufacturing plant in Palau over the next five years: Year 1 $250,000 Annual Cash Flows Year 2 $20,000 Year 3 Year 4 $180,000 $450,000 Year 5 $550,000 The CFO of the company believes that an appropriate annual interest rate on this investment is 4%. What is the present value of this uneven cash flow stream, rounded to the nearest whole dollar?
The Purple Lion Beverage Company expects the following cash flows from its manufacturing plant in Palau over the next four years: Annual Cash Flows Year 1 Year 2 Year 3 Year 4 $100,000 $20,000 $330,000 $450,000 The Cro of the company believes that an appropriate annual interest rate on this investment is 4%. What is the present value of this uneven cash flow stream, rounded to the nearest whole dollar? O $1,650,000 O 2,000,000 O $792,676 O $450,000
A firm wishes to maintain an internal growth rate of 10 percent and a dividend payout ratio of 44 percent. The current profit margin is 6.6 percent and the firm uses no external financing sources. What must total asset turnover be? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Total asset turnover times
Consider a REIT that holds high quality office buildings in some of the best locations in the US. The REIT is currently traded at a price of $64/share and there are 130 million shares outstanding. Using the information below answer the following questions: Expected next year total revenue: $750M Expected next year total expenses (including interest and depreciation): $380M Expected next year depreciation: $90M Expected next year interest: $70M Total debt: $1.6B Current office CAP in the US: 4.5% to 6.0% depending on quality and location. a. What is your estimation for a fair market value for a share of the REIT described? Show your work! b. What is your estimation for a fair price to pay for a share of the REIT described, if you require a 7.5% rate of return on an unlevered basis and expect the REIT to increase NOI at an average rate of 2.5%? Should you buy shares of that REIT?

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS