Anwer in typing other wise down vote you In Question 7 consider the following dataPre-deal value630160AcquirerTargetPremiumSynergy2440Debt Leverage Credit rating19531% BBB-8050% BB-(30% of pre-deal equity)7. Assuming that the acquirer has zero cash, estimate the leverage ratio of the acquirer if it buys the target in an all cash dealShould the acquirer pay for this deal in cash? Discuss (2 paragraphs max)

We have to find the leverage post the transaction of the combined entity. As a first step, we will…

In Question 7 consider the following data Acquirer Target Premium Synergy Pre-deal value Debt Leverage Credit rating 630 31% BBB- 195 160 80 50% BB- 24 40 (30% of pre-deal equity) 7. Assuming that the acquirer has zero cash, estimate the leverage ratio of the acquirer if it buys the target in an all cash deal Should the acquirer pay for this deal in cash? Discuss (2 paragraphs max)

In Question 7 consider the following data Acquirer Target Premium Synergy Pre-deal value Debt Leverage Credit rating 630 31% BBB- 195 160 80 50% BB- 24 40 (30% of pre-deal equity) 7. Assuming that the acquirer has zero cash, estimate the leverage ratio of the acquirer if it buys the target in an all cash deal Should the acquirer pay for this deal in cash? Discuss (2 paragraphs max)

Financial Reporting, Financial Statement Analysis and Valuation

8th Edition

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Chapter12: Valuation: Cash-flow Based Approaches

Section: Chapter Questions

Problem 2CIC

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1. Assume that you want to secure a purchase at strike price and you have the following information on hand: Strike = $ 50 Put = $ 6 Call = $ 7 Probable market values at maturity: 30, 40, 50, 60, 70 a) Show the net results that you would obtain under each market value when performing a purchase synthetic forward. b) Show the net flows you would obtain under each market value when performing purchase synthetic forward.
Arbitrage 1. Suppose that Call premium = $3 Spot price of asset = $20 Time to maturity = 1 r = 10% Strike price K = = $18 The asset pays no dividend. Write down the full arbitrage steps. What is the profit $$ amount ?
Consider the following money market information being quoted: Which of the following statements is true? Particulars GBP Interest Rate THB Interest Rate Spot Rate 1-year Expected Spot Rate Bid Rate 6.100% 10.550% THB5.6601/GBP THB5.9037/GBP C. Ask Rate 6.125% 10.625% THB5.6622/GBP THB5.9961/GBP a. There is an arbitrage which can only be made by initially borrowing GBP and then investing in THB. b. More than one of the options in this question are correct. The THB is selling at a premium to the GBP in the future. O d. There is an arbitrage which can only be made by initially borrowing THB and then investing in GBP.
a) An investor is given the following information: Payoff State 1 State 2 Security Market prices (s=1) (s=2) X £15 £20 PJ = £19 Y £25 £10 PK = £25 Explaining the method(s) and the underlining concept(s), how could the investor use Arrow- Debreu pure securities to replicate the payoff of security X and security Y? What are the prices of pure security 1 and pure security 2?
a) Assume that call currency option enable to buy of dollar for Shs. 50.00 while it is quotedat Shs. 50.70 in the spot market, and premium paid for call currency option is Shs. 1.00.a)Calculate the intrinsic value of the call? b) Discuss the value of hedging to a firm.
Assume the following scenario Company A (Wants Fixed) Company B (Wants Float) Company C (Wants Float) Fixed 8% 7% 10% Float 7% 8% 10% Amount $1,000,000 $500,000 $500,000 How much does each company save by engaging in interest rate swaps if we assume each company shares the benefits evenly with their counterparty.
The following payoffs are observed in frictionless markets: Dividend next period Price next period Price today Asset 1 9 138 P1 Asset 2 9 75 80 A. In the absence of arbitrage opportunities, p₁= 127. B. In the absence of arbitrage opportunities, p₁= 140. C. In the absence of arbitrage opportunities, p₁= 142. D. If arbitrage opportunities are absent, the rate of return on asset 1 equals 9%. E. None of the above.
If S($/£)=$1.25/£; F360($/£)=$1.10/£; i$=7.04%; if=11.50%, to hedge foreign exchange risk involved in doing interest arbitrage: O £-based investors should buy GBP in the forward market O £-based investors should buy USD in the forward market O $-based investors should buy GBP in the forward market O $-based investors should buy USD in the forward market
Figure 2 (a) Financial engineering deals with the design of new assets. Draw the payoff (at t=1) of the following butterfly spread: payoff of portfolio Purchase 1 call with exercise price a Sell 2 calls with exercise price (atb)/2 Purchase 1 call with exercise price b as a function of the underlying stock price S at t=1 where a=120 and b=140. (b) An individual agent thinks that there is a high probability that the Dow Jones will have a payoff (or points) between a=34,000 and b-36,000 at t=1. 1=nd Design a digital option (see Figure 1) as a sequence of calls on the Dow that converges to a pure bet on getting $1 on the interval [34,000, 36,000]. ie, if the Dow lies between SE[34,000, 36,000] at t=1, then the portfolio of calls pays off exactly $1. The payoff is 0 otherwise. a+8 Figure 1 (Digital option) payoff a=34,000 b-36,000 S. Hint: You have to modify the sell strategies of a butterfly spread to obtain a payoff as given in Figure 2 and then adjust n and 8 appropriately.
The following payoffs are observed in frictionless markets: Dividend next period Price next period Price today Asset 1 4 84 80 Asset 2 5 105 P2 A. The rate of return on asset 2 equals 5%. B. In the absence of arbitrage opportunities, p2= 100. C. In the absence of arbitrage opportunities, the rate of return on asset 1 equals 8%. D. In the absence of arbitrage opportunities, p2= 110. E. None of the above.
(a) Financial engineering deals with the design of new assets. Draw the payoff (at t=1) of the following bull butterfly spread: Purchase 1 call with exercise price a Sell 2 calls with exercise price (atb)/2 Purchase 1 call with exercise price b as a function of the underlying stock price S at t=1 where a=120and b=140. (b) An individual agent thinks that there is a high probability that the Dow Jones will have a payoff (or points) between a=32,000 and b=36,000 at t=1. Design a digital option (see Figure 1) as a sequence of calls on the Dow that converges to a pure bet on getting $1 on the interval [32,000, 36,000], i.e. if the Dow lies between Se[32,000, 36,000] at t=1, then the portfolio of calls pays off exactly $1. The payoff is O otherwise. Figure I (Digital option) payoff a-32,000 b-36,000 Hint: You have to modify the sell strategies of a bull butterfly spread to obtain a payoff as given in Figure 2 and then adjust n and õ appropriately. Figure 2 payoff of portfolio 1-nő a b-8
If bank X is quoting “A $1.5838/ bid and A $1.1682/€ ask” and bank Y is quoting “A $1.1684/€ bid and A $1.1690/€ ask”. If you buy € 2million from X at it’s A $1.1682/€ ask price and simultaneously sell € 2million to Y at it’s A $ 1.1684/€ bid price. Calculate arbitrage profit.