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Question
A project costs $15 million and is expected to produce cash flows of $3 million a year for 10 years. The opportunity cost of capital is 14%. If the firm has to issue stock to undertake the project and issue costs are $500,000, what is the project's APV (approximately)?
A. -$352,000
B. $148,350
C. $648,350
D. $952,000
Answer
This answer is hidden. It contains 58 characters.
Related questions
Q:
Suppose VS's stock price is currently $20. In the next six months it will either fall to $10 or rise to $30. What is the current value of a put option with an exercise price of $15? The six-month risk-free interest rate is 5% (periodic rate).
A. $5.00
B. $2.14
C. $0.86
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Q:
Suppose Ralph's stock price is currently $50. In the next six months it will either fall to $30 or rise to $80. What is the option delta of a call option with an exercise price of $50?
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C. 0.600
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Q:
A call option has an exercise price of $100. At the final exercise date, the stock price could be either $50 or $150. Which investment would combine to give the same payoff as the stock?
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B. Lend PV of $50 and sell two calls
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Briefly explain the term "option delta."
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Briefly explain why an option is always riskier than the underlying stock.
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The binomial model is a discrete time model.
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Using the binomial model, what is the value of a three month option given the following data and assuming there are no time periods other than three months? The exercise price is $40; stock price is $46; the upside price is $48; the downside price is $34; the 3 month interest rate is 2%. The upside and down side have equal probabilities.
A. $3.92
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Q:
The Black-Scholes OPM is dependent on which five parameters?
A. Stock price, exercise price, risk free rate, beta, and time to maturity
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D. Stock price, exercise price, risk free rate, variance and time to maturity
Q:
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All things being equal, the closer an option gets to expiration, the lower the option price.
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B. Fall exactly by the amount of the dividend
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D. Cannot be predicted
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One key assumption of the Miller and Modigliani (MM) dividend irrelevance argument is that:
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B. There are no capital gains taxes
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Generally, investors view the announcement of open-market repurchase of stocks as:
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Generally, investors interpret the announcement of a decrease in dividends as:
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Generally, investors interpret the announcement of an increase in dividends as:
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B. good news and the stock price increases
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