Minicase: ALLIED products narrative
We have made a number of necessary assumptions. The instructor may decide to make different assumptions.
1. The average beta of companies in the commercial aircaraft market (Allied Signal, Boeing, etc) is one according

Chapter 8: Risk Analysis, Real Options, and Capital Budgeting
8.1 Calculate the NPV of the expected payoff for the option of going directly to market. NPV(Go Directly) = CSuccess (Prob. of Success) + CFailure (Prob. of Failure) = $20,000,000 (0.50) + $5,0

Chapter 7: Net Present Value and Capital Budgeting
7.1 a. Yes, the reduction in the sales of the companys other products, referred to as erosion, should be treated as an incremental cash flow. These lost sales are included because they are a cost (a reven

Chapter 12: Risk, Cost of Capital, and Capital Budgeting
12.1 The discount rate for the project is equal to the expected return for the security, RS, since the project has the same risk as the firm as a whole. Apply the CAPM to express the firms required

Chapter 11: An Alternative View of Risk and Return: The Arbitrage Pricing Theory
11.1 Real GNP was higher than anticipated. Since returns are positively related to the level of GNP, returns should rise based on this factor. Inflation was exactly the amoun

Chapter 10: Return and Risk: The Capital-Asset-Pricing Model (CAPM)
10.1 a. Expected Return = (0.1)(-0.045) + (.2)(0.044) + (0.5)(0.12) + (0.2)(0.207) = 0.1057 = 10.57% The expected return on Q-marts stock is 10.57%.
b.
Variance ( 2) = (0.1)(-0.045 0.1057

Chapter 9: Capital Market Theory: An Overview
9.1 a. The capital gain is the appreciation of the stock price. Because the stock price increased from $37 per share to $38 per share, you earned a capital gain of $1 per share (=$38 - $37). Capital Gain = (Pt

Appendix 5A: The Term Structure of Interest Rates, Spot Rates, and Yields to Maturity
5A.1 a. The present value of any coupon bond is the present value of its coupon payments and face value. Match each cash flow with the appropriate spot rate. For the cas

Chapter 5: How to Value Bonds and Stocks
5.1 The present value of any pure discount bond is its face value discounted back to the present. a. PV = F / (1+r)10 = $1,000 / (1.05)10 = $613.91 = $1,000 / (1.10)10 = $385.54 = $1,000 / (1.15)10 = $247.19
b. c.

Chapter 4: Net Present Value
4.1 a. b. c. Future Value Future Value Future Value = C0 (1+r)T = $1,000 (1.05)10 = $1,628.89 = $1,000 (1.07)10 = $1,967.15 = $1,000 (1.05)20 = $2,653.30
d.
Because interest compounds on interest already earned, the interest e

Chapter 3: Financial Planning and Growth
3.1 From the relationship, S = .00001 x GNP, we can get forecast sales: S = 0.00001; GNP = 0.00001 ($2,050 trillion) = $20,500,000
Now, compute the other values: Projected Current Assets = Current Assets + Current

Chapter 2: Accounting Statements and Cash Flow
2.1 Following the example in Table 2.1: Assets Current assets Cash Accounts receivable Total current assets Fixed assets Machinery Patents Total fixed assets Total assets Liabilities and equity Current liabil

1
MECHANICSOFOPTIONS
MARKETS
Options, Futures, and Other Derivatives, 7th Ed., John C. Hull (2008):
Chapter 9-10
PayoffsfromOptions
WhatistheOptionPositioninEachCase?
2
K=Strikeprice,ST=Priceofassetatmaturity
Payoff
K
longcall
Payoff
K
longput
Payoff

1
MECHANICSOFOPTIONS
MARKETS
Options, Futures, and Other Derivatives, 7th Ed., John C. Hull (2008):
Chapter 9-10
Notation
2
c : Europeancall
optionprice
p: Europeanput
optionprice
S0 : Stockpricetoday
AmericanCalloption
price
P : AmericanPutoption
price
S

1
MECHANICSOFOPTIONS
MARKETS
Options, Futures, and Other Derivatives, 7th Ed., John C. Hull (2008):
Chapter 9-10
Options
2
Acalloptionisanoptiontobuyacertainassetbya
certaindateforacertainprice(thestrikeprice)
Aputoptionisanoptiontosellacertainassetbya
ce

1
DIVIDENDSANDOTHER
PAYOUTS
Ross,Westerfield&JaffeCorporateFinance7thed.Chapter18
DividendPayments:Chronology
2
January 15
Declaration
date
January 30
Record date
January 28
February 16
Ex-dividend
Payment date
date
Declarationdate:Dateonwhichtheboardofdi

1
DIVIDENDSANDOTHER
PAYOUTS
Ross,Westerfield&JaffeCorporateFinance7thed.Chapter18
DividendPayments:Chronology
2
January 15
Declaration
date
January 30
Record date
January 28
February 16
Ex-dividend
Payment date
date
Declarationdate:Dateonwhichtheboardofdi

1
CAPITALSTRUCTURE:
THEBASICCONCEPTS
Ross,Westerfield&JaffeCorporateFinance7thed.Chapter15
TheCapitalStructureQuestion
andThePieTheory
2
Thevalueofafirmisdefinedtobethesumofthe
valueofthefirmsdebtandthefirmsequity.
V=D+E
If the goal of the management of

1
CAPITALMARKETTHEORY:
TheArbitragePricingTheory
Ross,Westerfield&JaffeCorporateFinance7thed.Chapter11
FromTheorytoData
2
APTassumesthatassetreturnsaregeneratedbyalinear
factormodel:
~
~
~
~
~
Ri ai bi1 F1 bi 2 F2 . bik Fk i
Andtheequilibriumconditionis: