Fundamentals of Corporate Finance
11th Edition
ISBN: 9780077861704
Author: Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Bradford D Jordan Professor
Publisher: McGraw-Hill Education
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Chapter 24.6, Problem 24.6ACQ
Summary Introduction
To think critically about: The reason for stating that almost all capital budgeting proposals include mutually exclusive alternatives.
Introduction:
The process in which the business finds and assess the potential expenditure or investment with a high nature is capital budgeting.
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California Construction Inc. is considering a 15 percent stock dividend. The capital accounts are: Common stock (6,000,000 shares at $10 par) ....... $60,000,000 Capital in excess of par* ...................................... 35,000,000 Retained earnings ................................................ 75,000,000 Net worth ......................................................... $170,000,000 *The increase in capital in excess of par as a result of a stock dividend is equal to the shares created times (Market price – Par value).
The company’s stock is selling for $32 per share. The company had total earnings of $19,200,000 with 6,000,000 shares outstanding and earnings per share were $3.20. The firm has a P/E ratio of 10.
a. Show the new capital accounts if a 15 percent stock dividend is given.
b. What adjustments would be made to EPS and the stock price? (Assume the P/E ratio remains constant.)
c. How many shares would an investor have if they originally had 80 shares?
d. What…
Refer to Table 10–6.
Price quotes are stated in 1/64ths.
What was the closing price of a May 3,990 call option on the S&P 500 Stock Index futures contract on January 13, 2023?
Round your closing price answer to 1 decimal place and dollar price answer to the nearest whole number.
TABLE 10-6 Option Quotes, January 13, 2023
Underlying Asset: S&P 500 Index (SPX)
Closing Value: 3,999.09
Expiration
Strike Price
Calls
Puts
Last
Volume
Open Interest
Last
Volume
Open Interest
04-21-23
3990
140
0
258
164.6
0
223
04-21-23
4010
164.3
257
18,244
144.3
100
17,166
05-19-23
3990
200.7
210
30
169.1
210
52
05-19-23
4010
186.1
303
3,552
279.2
2
3,965
06-16-23
3990
223.3
1
16
178.8
1
1
06-16-23
4010
152.9
0
46
183
1,665
42,159
12-15-23
3975
361
100
2,555
250.1
32
2,438
12-15-23
4025
349.3
0
2,416
268.2
4
2,149
OPTIONS ON INTEREST RATE FUTURES
Underlying Asset: March 2023 30-Year Treasury Bond Future
Prior Settle: 130'02
Expiration
Strike Price
Calls
Puts…
Terrill Machining Inc. sells machine parts to auto mechanics. It has not paid a dividend in many years but is currently contemplating some kind of dividend. The capital accounts for the firm are as follows: Common stock (2,400,000 shares at $5 par) . Capital in excess of par* ............................... Retained earnings ......................................... Net worth ................................................... $12,000,000 5,000,000 23,000,000 $40,000,000 *The increase in capital in excess of par as a result of a stock dividend is equal to the new shares created times (Market price – Par value). The company’s stock is selling for $20 per share. The company had total earnings of $4,800,000 during the year. With 2,400,000 shares outstanding, earnings per share were $2.00. The firm has a P/E ratio of 10. a. What adjustments would have to be made to the capital accounts for a 10 percent stock dividend? Show the new capital accounts. b. What adjustments would be made to…
Chapter 24 Solutions
Fundamentals of Corporate Finance
Ch. 24.1 - What is a call option? A put option?Ch. 24.1 - If you thought that a stock was going to drop...Ch. 24.2 - What is the value of a call option at expiration?Ch. 24.2 - What are the upper and lower bounds on the value...Ch. 24.2 - Prob. 24.2CCQCh. 24.3 - Prob. 24.3ACQCh. 24.3 - Prob. 24.3BCQCh. 24.3 - Prob. 24.3CCQCh. 24.4 - Prob. 24.4ACQCh. 24.4 - Prob. 24.4BCQ
Ch. 24.5 - Why do we say that the equity in a leveraged firm...Ch. 24.5 - All other things being the same, would the...Ch. 24.6 - Prob. 24.6ACQCh. 24.6 - Prob. 24.6BCQCh. 24.6 - Prob. 24.6CCQCh. 24.7 - Prob. 24.7ACQCh. 24.7 - Prob. 24.7BCQCh. 24.7 - Prob. 24.7CCQCh. 24.7 - Prob. 24.7DCQCh. 24 - Steve sold a put option when the option premium...Ch. 24 - Prob. 24.2CTFCh. 24 - Prob. 24.4CTFCh. 24 - Prob. 1CRCTCh. 24 - Prob. 2CRCTCh. 24 - Prob. 3CRCTCh. 24 - Prob. 4CRCTCh. 24 - Prob. 5CRCTCh. 24 - Options and Stock Risk [LO2] If the risk of a...Ch. 24 - Prob. 7CRCTCh. 24 - Prob. 8CRCTCh. 24 - Prob. 9CRCTCh. 24 - Prob. 10CRCTCh. 24 - Prob. 11CRCTCh. 24 - Prob. 12CRCTCh. 24 - Prob. 13CRCTCh. 24 - Prob. 14CRCTCh. 24 - Prob. 15CRCTCh. 24 - Calculating Option Values [LO2] T-bills currently...Ch. 24 - Understanding Option Quotes [LO1] Use the option...Ch. 24 - Calculating Payoffs [LO1] Use the option quote...Ch. 24 - Calculating Option Values [LO2] The price of Build...Ch. 24 - Calculating Option Values [LO2] The price of...Ch. 24 - Using the Pricing Equation [LO2] A one-year call...Ch. 24 - Equity as an Option [LO4] Rackin Pinion...Ch. 24 - Equity as an Option [LO4] Buckeye Industries has...Ch. 24 - Calculating Conversion Value [LO6] A 1,000 par...Ch. 24 - Convertible Bonds [LO6] The following facts apply...Ch. 24 - Calculating Values for Convertibles [LO6] You have...Ch. 24 - Calculating Warrant Values [LO6] A bond with 20...Ch. 24 - Prob. 13QPCh. 24 - Prob. 14QPCh. 24 - Prob. 15QPCh. 24 - Prob. 16QPCh. 24 - Intuition and Option Value [LO2] Suppose a share...Ch. 24 - Intuition and Convertibles [LO6] Which of the...Ch. 24 - Convertible Calculations [LO6] Starset, Inc., has...Ch. 24 - Abandonment Decisions [LO5] Allied Products, Inc.,...Ch. 24 - Pricing Convertibles [LO6] You have been hired to...Ch. 24 - Abandonment Decisions [LO5] Consider the following...Ch. 24 - SS Airs Convertible Bond SS Air is preparing its...Ch. 24 - Prob. 2MCh. 24 - Prob. 3MCh. 24 - Prob. 4MCh. 24 - Prob. 5M
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