Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
4th Edition
ISBN: 9780134083278
Author: Jonathan Berk, Peter DeMarzo
Publisher: PEARSON
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Textbook Question
Chapter 20, Problem 24P
Explain why an American call option on a non-dividend-paying stock always has the same price as its European counterpart.
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Stevens Textile Corporation's 2019 financial statements are shown below
Balance Sheet as of December 31, 2019 (Thousands of Dollars)
Cash
$ 1,080
Accounts payable
$ 4,320
Receivables
6,480
Accruals
2,880
Inventories
9,000
Line of credit
0
Total current assets
$16,560
Notes payable
2,100
Net fixed assets
12,600
Total current liabilities
$ 9,300
Mortgage bonds
3,500
Common stock
3,500
Retained earnings
12,860
Total assets
$29,160
Total liabilities and equity
$29,160
Income Statement for December 31, 2019 (Thousands of Dollars)
Sales
$36,000
Operating costs
34,000
Earnings before interest and taxes
$ 2,000
Interest
160
Pre-tax earnings
$ 1,840
Taxes (25%)
460
Net income
$ 1,380
Dividends (40%)
$ 552
Addition to retained earnings
$ 828
Stevens grew rapidly in 2019 and financed the growth with notes payable and long-term bonds. Stevens expects sales to grow by 20% in the next year but will finance…
At year-end 2019, Wallace Landscaping’s total assets were $2.30 million, and its accounts payable were $430,000. Sales, which in 2019 were $2.9 million, are expected to increase by 20% in 2020. Total assets and accounts payable are proportional to sales, and that relationship will be maintained. Wallace typically uses no current liabilities other than accounts payable. Common stock amounted to $630,000 in 2019, and retained earnings were $330,000. Wallace has arranged to sell $180,000 of new common stock in 2020 to meet some of its financing needs. The remainder of its financing needs will be met by issuing new long-term debt at the end of 2020. (Because the debt is added at the end of the year, there will be no additional interest expense due to the new debt.) Its net profit margin on sales is 5%, and 50% of earnings will be paid out as dividends.
What was Wallace's total long-term debt in 2019? Round your answer to the nearest dollar.
$
What were Wallace's total liabilities in…
Solve quickly
Chapter 20 Solutions
Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
Ch. 20.1 - What is the difference between an American option...Ch. 20.1 - Does the holder of an option have to exercise it?Ch. 20.1 - Prob. 3CCCh. 20.2 - What is a straddle?Ch. 20.2 - Explain how you can use put options to create...Ch. 20.3 - Explain put-call parity.Ch. 20.3 - If a put option trades at a higher price from the...Ch. 20.4 - What is the intrinsic value of an option?Ch. 20.4 - Can a European option with a later exercise date...Ch. 20.4 - How does the volatility of a stock affect the...
Ch. 20.5 - Is it ever optimal to exercise an American call on...Ch. 20.5 - When might it be optimal to exercise an American...Ch. 20.5 - Prob. 3CCCh. 20.6 - Explain how equity can be viewed as a call option...Ch. 20.6 - Explain how debt can be viewed as an option...Ch. 20 - Explain the meanings of the following financial...Ch. 20 - What is the difference between a European option...Ch. 20 - Below is an option quote on IBM from the CBOE Web...Ch. 20 - Prob. 4PCh. 20 - Prob. 5PCh. 20 - You own a call option on Intuit stock with a...Ch. 20 - Assume that you have shorted the call option in...Ch. 20 - You own a put option on Ford stock with a strike...Ch. 20 - Assume that you have shorted the put option in...Ch. 20 - What position has more downside exposure: a short...Ch. 20 - Consider the October 2015 IBM call and put options...Ch. 20 - You are long both a call and a put on the same...Ch. 20 - You are long two calls on the same share of stock...Ch. 20 - A forward contract is a contract to purchase an...Ch. 20 - You own a share of Costco stock. You are worried...Ch. 20 - Dynamic Energy Systems stock is currently trading...Ch. 20 - You happen to be checking the newspaper and notice...Ch. 20 - In mid-February 2016, European-style options on...Ch. 20 - Suppose Amazon stock is trading for 500 per share,...Ch. 20 - Consider the data for IBM options in Problem 3....Ch. 20 - You are watching the option quotes for your...Ch. 20 - Explain why an American call option on a...Ch. 20 - Consider an American put option on XAL stock with...Ch. 20 - The stock of Harford Inc. is about to pay a 0.30...Ch. 20 - Suppose the SP 500 is at 900, and a one-year...Ch. 20 - Suppose the SP 500 is at 900, and it will pay a...Ch. 20 - Prob. 29PCh. 20 - Suppose that in July 2009, Google were to issue 96...
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