Solution to FM12 Ch 17 P11 Build a Model
3 Pages

Solution to FM12 Ch 17 P11 Build a Model

Course: FI FI504, Summer 2009

School: DeVry Chicago

Word Count: 460

Rating:

Document Preview

8/13/2006 Chapter 17. Solution to Ch 17 P11 Build a Model A. Fethe is a custom manufacturer of guitars, mandolins and other stringed instruments located near Knoxville, TN. Fethe's current value of operations, which is also its value of debt plus equity, is estimated to be $5 million. Fethe has $2 million face-value zero-coupon debt that is due in 2 years. The risk free rate is 6 percent, and the volatility of...

Unformatted Document Excerpt
Coursehero >> Illinois >> DeVry Chicago >> FI FI504

Course Hero has millions of student submitted documents similar to the one
below including study guides, practice problems, reference materials, practice exams, textbook help and tutor support.

Course Hero has millions of student submitted documents similar to the one below including study guides, practice problems, reference materials, practice exams, textbook help and tutor support.

17. 8/13/2006 Chapter Solution to Ch 17 P11 Build a Model A. Fethe is a custom manufacturer of guitars, mandolins and other stringed instruments located near Knoxville, TN. Fethe's current value of operations, which is also its value of debt plus equity, is estimated to be $5 million. Fethe has $2 million face-value zero-coupon debt that is due in 2 years. The risk free rate is 6 percent, and the volatility of companies similar to Fethe is 50 percent. Fethe's owners view their equity investment as an option and would like to know the value of their investment. a. Using the Black-Scholes Option Pricing Model, how much is Fethe's equity worth? Black-Scholes Option Pricing Model Total Value of Firm Face Value of Debt Risk Free rate Maturity of debt (years) Standard Dev. d1 d2 N(d1) N(d2) Call Price = Equity Value 5.00 this is the current value of operations 2.00 0.06 2.00 0.50 this is sigma--also known as volatility 1.8191 use the formula from the text 1.1120 use the formula from the text 0.9656 use the Normsdist function in the function wizard 0.8669 $3.2900 b. How much is the debt worth today? What is its yield? Debt value = Total Value - Equity Value = Debt yield = $1.71 8.146% c. How much would the equity value and the yield on the debt change if Fethe's management were able to use risk management techniques to reduce its volatility to 30 percent? Can you explain this? Equity value at 50% volatility Equity value at 30% volatility Percent change 3.29000 3.22910 -0.01851 a. Graph the cost of debt versus the face value of debt for values of the face value from $0.5 to $8 million. Cost of Debt Face Value of Debt 8.146% hint: use a data table 0.5 6.19% 9.00% 1 6.38% 8.00% 1.5 7.02% Yield on Debt 2 2.5 3 3.5 4 4.5 8.15% 9.71% 11.62% 13.80% 16.18% 18.70% 7.00% 6.00% 5.00% 4.00% 3.00% 2.00% 1.00% 1 0.00% 3 of 0 1 2 3 4 5 Face Value of Debt 6 7 8 9 7.00% Yield on Debt 6.00% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% 0 1 2 3 4 5 Face Value of Debt 6 7 8 9 5 5.5 6 6.5 7 7.5 8 21.34% 24.06% 26.84% 29.66% 32.50% 35.37% 38.23% b. Graph the values of debt and equity for volatilities from 0.10 to 0.90 when the face value of the debt is $2 million. Value of Debt Value of Equity Volatility Face Value of Debt Volatility Face Value of Debt $1.71 2 $3.29 2 0.1 1.7738 0.1 3.2262 Note: Use a 2-dimensional data t 0.2 1.7738 0.2 3.2262 can change the face value of debt 0.3 1.7709 0.3 3.2291 the base 'face value of debt for al 0.4 1.7523 0.4 3.2477 that gives the value of equity or d 0.5 1.7100 0.5 3.2900 "Volatility" and the column inpu 0.6 1.6462 0.6 3.3538 C18. Note that this looks differen 0.7 1.5663 0.7 3.4337 data table in part a. 0.8 1.4759 0.8 3.5241 0.9 1.3793 0.9 3.6207 Equity and Debt Values 3.5000 3.0000 2.5000 Value 2.0000 1.5000 1.0000 0.5000 0.0000 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1 Volatility (sigma) Value of Debt Value of Equity c. Repeat part b, but instead using a face value of debt of $5 million. What can you say about the difference between the graphs in part b and part c? Value of Debt Value of Equity Volatility Face Value of Debt Volatility Face Value of Debt $1.71 5 $3.29 5 0.1 4.3613 0.1 0.6387 See the note above for part b tha 0.2 4.1401 0.2 0.8599 0.3 3.8938 0.3 1.1062 0.4 3.6439 0.4 1.3561 0.5 3.3959 0.5 1.6041 0.6 3.1525 0.6 1.8475 2 of 3 0.7 0.8 0.9 2.9156 2.6863 2.4656 0.7 0.8 0.9 2.0844 2.3137 2.5344 3.5000 3.0000 2.5000 Value 2.0000 1.5000 1.0000 0.5000 0.0000 0 0.1 0.2 0.3 0.4 0.5 0.6 Volatility (sigma) 0.7 0.8 0.9 1 Value of Debt Value of Equity The value of debt and equity change much more dramatically as the volatility changes when there is more debt. 3 of 3

Find millions of documents on Course Hero - Study Guides, Lecture Notes, Reference Materials, Practice Exams and more. Course Hero has millions of course specific materials providing students with the best way to expand their education.

Below is a small sample set of documents:

DeVry Chicago - FI - FI504
8/16/2006Chapter 18. Solution to Ch 18-12 Build a ModelBuena Terra Corporation is reviewing its capital budget for the upcoming year. It has paid a $3.00 dividend per share (DPS) for the past several years, and its shareholders expect the dividen
DeVry Chicago - FI - FI504
A 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36BCDEChapter 19. Solution to Ch 19-06 Build a ModelNote: Fill in the shaded cells with the appropriate formulaMullet Technologies is consi
DeVry Chicago - FI - FI504
A 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54BCDEFGHI 9/2/2006Chapter 20. Solution to Ch 20-06 Build a ModelAs part of its
DeVry Chicago - FI - FI504
A 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26BCDEFGHChapter 21. Solution to Ch 21-08 Build a ModelNiendorf Incorporated needs to raise $25 million to construct production facilities for a new type of USB mem
DeVry Chicago - FI - FI504
9/4/2006Chapter 22. Solution to Ch 22 P18 Build a ModelInput Data Collections during month of sale Collections during month after sale Collections during second month after sale Lease payments Target cash balance General and administrative salari
DeVry Chicago - FI - FI504
25b02f085cf2eb6ded546adc8cad10c42101015a.xlsBuild a Model 9/6/2006Chapter 23. Solution to Ch 23-06 Build a ModelProblem 23-6. Use the information and data from Problem 23-5 Problem Inputs: Size of planned debt offering = Anticipated rate on debt
DeVry Chicago - FI - FI504
9/8/2006Chapter 24. Solution for Ch 24-5 Build a ModelAt the time it defaulted on its interest payments and filed for bankruptcy, the McDaniel Mining Company had the following balance sheet (in thousands of dollars). The court, after trying unsuc
DeVry Chicago - FI - FI504
A 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59BCDEFGHIJ 9/14/2006Chapter 25. Solution to 25-07 Build a Mode
DeVry Chicago - FI - FI504
A 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50BCDEFGHI 9/20/2006Chapter 26. Solution to Ch 26-15 Build a ModelYohe Telecommunications
DeVry Chicago - FI - FI504
A 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41BCDEFGHChapter 27. Solution to Ch 27-12 Build a ModelMalone Feed and Supply Company buys on terms of 1/10, net 30, but
DeVry Chicago - FI - FI504
Chapter 28. Solution to Ch 28-3 Build a ModelThe following inventory data have been established for the Alder Corporation: (1) Orders must be placed in multiples of 100 units. (2) Annual sales are 338,000 units. (3) The purchase price per unit is $3
Stanford - ENGR - 30
Stanford - ENGR - 30
Stanford - ME - 70
PROBLEM SET 5 SOLUTIONSProf. Cappelli Winter 2008-09ME 70 Problems due Wednesday February 11, 2008 Linear Momentum Conservation (and sometimes Bernoulli's Equation) Problem 4.98 (Fox, McDonald, and Pritchard) Problem 4.105 (Fox, McDonald, and Prit
Stanford - ME - 70
Stanford - ME - 70
Stanford - ME - 70
Stanford - ME - 70
Stanford - ME - 70
Winter 08-09SOLUTIONSME 70 Problems due Wednesday January 28, 2009 Forces on Submerged Surfaces and Line of Action Solve: Problem 3.64 (Fox, McDonald, and Pritchard 7th Edition) Problem 3.72 (Fox, McDonald, and Pritchard 7th Edition) you will have
Stanford - ME - 70
ME 70 Final Exam June 9, 2008 This is an open textbook only test. Supplemental notes can augment the text, but they must be inserted and firmly attached to the textbook. Some useful numbers: air = 1.23 kg/m3 air = 1.8 x 10-5 Ns/m2 air = 1.5 x 10-5
Stanford - ME - 70
ME 70 Solutions Set 1 Winter 2008-09ME 70 Problem Set 1 SOLUTIONS Problem 1.ME 70 Solutions Set 1 Winter 2008-092.32 x 1024 m-32.32 x 1024 m-3 0.116 kg- m-30.116 17.2 km(2.32 x 1024)-1/3 7.55 x 10-9 m 7.55 x 10-9 m17,237 m1 0.1 0.01 Me
Stanford - ME - 70
SOLUTIONSME 70 Problems due Wednesday February 4, 2009 Momentum Flux Solve: Problem 4.55 (Fox and McDonald 7th Edition) Combined Mass, and Momentum Balances Solve: Problem 4.62 (Fox and McDonald 7th Edition) Problem 4.70 (Fox and McDonald 7th Editio
Stanford - ME - 70
Prof. Cappelli Winter 2008-09 ME 70 Problems due Wednesday February 18, 2009 Energy Balances Solve Problem 4.198 (7th Edition, Fox, McDonald, and Pritchard) Problem 4.203 (7th Edition, Fox, McDonald, and Pritchard) More Bernoulli, Euler "s", and Eule
Stanford - ME - 70
SOLUTIONSME 70 Problems due Wednesday January 21, 2009 Hydrostatics (Pressure-Depth Relation) Solve: Problem 3.17 (Fox, McDonald and Pritchard) Problem 3.24 (Fox, McDonald and Pritchard) Buoyancy Solve: Problem 3.88 (Fox, McDonald and Pritchard) Rig
Stanford - SPANLANG - 15
Los Simpson Quin no conoce a esta familia?Todo empez el da en que Homer J.Simpson se declar a Marge Bouvier, y por algn motivo que desconozco, ella acept la peticin de matrimonio. Los Simpson son, por un lado, una familia peculiar, pero por otro lad
Stanford - SPANLANG - 15
Espaol 1 Fecha:_ Composicin #3- PRIMER I. ContenidoNombre del autor/a: _ Nombre del editor/a: _BORRADOR- ANALISIS DEL CONTENIDO1. Se describe el bilingismo del compaero con suficientesdetalles? (sus experiencias, sus opiniones, etc.) Si / No M
Stanford - SPANLANG - 15
Months, Seasons, and Dates Here are the months in Spanish. Note that, like the days of the week, they are not capitalized. enero . January febrero . February marzo . March abril .. April mayo . May junio . June julio . July agosto . August septiembr
Stanford - SPANLANG - 15
-> http:/www.scola.org Login: Password: Stanford_VS001 1891Jordan
Stanford - SPANLANG - 15
Hablando de la salud. (Talking about health) desmayarse estornudar fracturarse romperse quebrarse Me fractur la pierna (la nariz). Me romp el brazo (la rodilla). Me quebr la mueca (el dedo) vomitar tener. una alergia a. catarro una cortada diarrea do
Stanford - SPANLANG - 15
IMPERFECTOBefore studying the grammar explanation, answer the question based on the dialogue: Do the sentences ,practicaba todos los das." and ,Yo tambin jugaba mucho" Refer to actions that occured only once on the past or to habitual actions in t
Stanford - SPANLANG - 15
PRESENTACIN DE MI COMPAER@ . TEMA:. Conocimiento previo: Quiero recordar de esta presentacin:Quiero preguntar: Mi opinin:PRESENTACIN MI MI COMPAER@ . PRESENTACIN DEDE COMPAER@ . TEMA:.. TEMA:.Conocimiento previo: Quiero recordar de esta presenta
Stanford - SPANLANG - 15
EL CUERPOel ojo la nariz el cuello el hombro el pecho el codo la mueca la mano la cadera la pierna el taln el piela cabeza la oreja la boca la barbilla el brazo la tripa el ombligo el dedo el muslo la rodilla la tibia / la pantorrilla el tobillo
Stanford - SPANLANG - 15
Cmo elegir un tema para el informe oral y prepararloPaso 1 - Seleccin de tema (semana 8)Lluvia de ideas: Think about the skills you've practiced throughout the quarter (e.g., description in the present and past) and the broader topics we've studied
Stanford - SPANLANG - 15
Espaol 1 Edicin de composicin #2Nombre del autor: _ Nombre del editor: _Paso 1. Read your partner's composition and check for the following:Formato: The composition has a title h It is double-spaced h It is typewritten hPaso 2.Contenido: 1. M
Stanford - SPANLANG - 15
Read the questions below, then read the attached descriptions of some academic programs at a university in Ecuador. Answer the questions in English. 1. Name the three academic disciplines outlined below, and give one general fact about the program in
Stanford - SPANLANG - 15
PRCTICA ORAL -Espaol 2 Answer each of these questions in a full sentence. Cmo te llamas? Cuntos aos tienes? En qu ao naciste? De dnde eres? En qu te especializas? Qu materias tomas? Dnde vives? Qu tiempo hace hoy?QuickTimeand a TIFF (Uncompressed)
Stanford - SPANLANG - 15
Situacin: Ay, mi compa de cuarto!Persona A: Your compaero/a de cuarto has done it again! S/He's wore your favorite shirt (without your permission!) for a "special date" and then spilled red wine all over it. Express your shock and anger to your room
Stanford - SPANLANG - 15
Stanford Spanish Language Program9/23/08 4:50 PMLA COMIDA: Cmo es.? Puedes describir e identificar los alimentos segn su: CATEGORA: carne, marisco, verdura, postre, bebida, legumbre, tubrculo. COLOR TAMAO: grande, pequeo, mediano, enorme, minscul
Stanford - SPANLANG - 15
Stanford - HUMBIO - 4a
Part 1 1) C The visual, gustatory and olfactory systems all use a combinatorial code to interpret an image, taste or smell in the brain. All of these systems react to stimuli via their 7-pass transmembrane proteins such as G-proteins or opsin. While
Stanford - HUMBIO - 4a
4A Problem Set 1 RationalesPart 1 1. C Modified Student Rationale: "A" is false because the number of open K+ leak channels stays constant during action potentials, while "B" is false because the activity of Na/K+ pumps does not change during action
Stanford - HUMBIO - 4a
Human Biology 4B Final Exam June 13, 2007 PART 1: MULTIPLE CHOICE QUESTIONS 1D 2C 3B 4E 5D 6C 7E 8B 9C 10 A 11 C 12 A 13 C 14 A 15 A 16 D 17 D 18 E 19 A 20 A 21 C 22 C 23 D 24 B 25 B 26 B 27 C 28 A 29 A 30 B 31 B 32 A 33 D 34
Stanford - HUMBIO - 4a
Human Biology 4B (Spring 2008) Study Questions for the Final Exam These questions will guide you in considering the material you have learned throughout the quarter. Please note that the study questions are not exhaustive, and exam questions will dra
Stanford - HUMBIO - 4a
Pset 5 Rationales PART 1 1) B Calcitonin (released by the thyroid gland) and PTH (released by the parathyroid gland) work in opposition to each other to maintain homeostatic blood Calcium levels. While Calcitonin stimulates bone growth by inhibiting
Stanford - HUMBIO - 4a
REVIEWSPREFRONTAL AND MEDIAL TEMPORAL LOBE INTERACTIONS IN LONG-TERM MEMORYJon S. Simons* and Hugo J. SpiersCognitive neuroscience has made considerable progress in understanding the involvement of the medial temporal and frontal lobes in long-te
Stanford - HUMBIO - 4a
4A Final Thought QuestionsNote: These thought questions are not necessarily representative of the exam. They are meant to be a guide to help your studying only. There may be things tested which are not referred to in the questions, and there are que
Stanford - HUMBIO - 4a
HUMAN BIOLOGY 4AReview/Thought Questions for the Midterm, 2008This guide is intended to help you think about, review and integrate the material from the class, problem sets, virtual lab and text books. While we believe this guide will be useful it
Stanford - HUMBIO - 4a
HumBio 4B Midterm 2008 Thought Questions These questions will guide you in integrating the diverse material you have learned throughout the quarter. Please note that the study questions are not exhaustive, and exam questions will draw on all of the r
DeVry Chicago - FI - FI504
6/26/2006 Chapter 5. Solution to Ch 05 P24 Build a ModelRework Problem 5-12 using a spreadsheet. After completing questions a through d, answer the new question. A 10-year 12 percent semiannual coupon bond, with a par value of $1,000, may be called
University of Colombo - MCCU - MCCU 1000
ARE WE STILL ON NEWSPAPERS? MAGAZINES.NO.WE'VE MOVED TOYEAH! 1955, TWO MEN ADMITTED TO THE LYNCHING I'M SORRY, THEY DIDN'T ADMIT TO IT IN EMMITT TILL, 14-YEAR- THESE TWO ADMIT TODAYOF EMMITT TILL.1955, THE LYNCHING HAPPENED THEN. OLD LITTLE
University of Texas - CH - 90262
fernandez (jf23742) H02: Chapter 17 McCord (90262) This print-out should have 29 questions. Multiple-choice questions may continue on the next column or page find all choices before answering. A reminder that EXAM 1 is on Monday, August 20th, fro
LSU - EE - 4720
mr-1Spring 2001 Midterm Exam Reviewmr-1When / WhereWednesday, 21 March, 13:40-14:30 CSTCEBA 1112 (Here)ConditionsClosed Book, Closed NotesBring one sheet of notes (both sides), 216 mm 280 mm.No communication devices unless a fair wa
LSU - EE - 4720
03-1Instruction Set (ISA) Design and Addressing Modes03-1 03-2ISA Design Decisions03-2Material from sections 2.1, 2.2, and 2.3. I. OrganizationA. Data types (supported by ISA). B. Memory and register organization. C. Addressing modes.Outl
LSU - EE - 4720
10-1Dynamic Scheduling10-1This Set Scheduling and Dynamic Execution Definitions From various parts of Chapter 4. Description of Two Dynamic Scheduling MethodsNot yet complete.(Material below may repeat material above.) Tomasulo's Algo
LSU - EE - 4720
02-1Components of CPU Performance and Performance Equation02-1Why is my computer fast (or slow)? ?Would it help to improveCPU performance equation is one way to start answering these questions.02-1EE 4720 Lecture Transparency. Formatted
LSU - EE - 4720
NameComputer Architecture EE 4720 Final Examination8 May 2000, 10:0012:00 CDTProblem 1 Problem 2 Problem 3 Problem 4 Problem 5 Alias Good Luck!(20 pts) (10 pts) (10 pts) (21 pts) (39 pts) (100 pts)Exam TotalProblem 1: An extended DLX ISA,
LSU - EE - 4720
10-1Dynamic Scheduling10-1 10-2Dynamic Scheduling10-2This Set Scheduling:Organizing instructions to improve execution efficiency. Scheduling and Dynamic Execution Definitions From various parts of Chapter 4. Static Scheduling:Organizing
LSU - EE - 4720
01-1EE 4720-Computer Architecture01-1URL: http:/www.ece.lsu.edu/ee4720/RSS: http:/www.ece.lsu.edu/ee4720/rss home.xmlOffered by:David M. Koppelman349 EE Building, 578-5482, koppel@ece.lsu.edu, http:/www.ece.lsu.edu/koppelOffice Hours:
LSU - EE - 4720
01-1EE 4720-Computer Architecture01-1Call Number 1825 (Fall 2002)URL: http:/www.ece.lsu.edu/ee4720Offered by:David M. Koppelman349 EE Building578-5482, koppel@ece.lsu.edu, http:/www.ece.lsu.edu/koppel/koppel.htmlTentative office hou
LSU - EE - 4720
fr-1Fall 2003 Final Exam Reviewfr-1When / WhereTuesday, 9 December 2003, 10:00-12:00 CST (Here).ConditionsClosed Book, Closed NotesBring one 215 280 mm note sheet.Cannot use communication devices.FormatTwo or three or maybe four p
LSU - EE - 4720
mr-1Fall 2005 Midterm Exam Reviewmr-1When / WhereMonday, 24 October 2005, 12:40-13:30 CDTCEBA 2142 (Here)ConditionsClosed Book, Closed NotesBring one sheet of notes (both sides), 216 mm 280 mm.No use of communication devices.Forma