A retail furniture company buys furniture wholesale and distributes it through its retail stores. The owner believes that she has some good ideas for making stylish new furniture. She is considering a project to buy a factory and employ workers to manufacture the new furniture she's designed. Furniture manufacturing has more systematic risk than furniture retailing.
Her furniture retailing firm's after-tax WACC is 20%. Furniture manufacturing firms have an after-tax WACC of 30%. Both firms are optimally geared. Assume a classical tax system.
Which method(s) will give the correct valuation of the new furniture-making project? Select the most correct answer.
Select the most correct statement from the following.
'Chartists', also known as 'technical traders', believe that:
A European put option will mature in ##T## years with a strike price of ##K## dollars. The underlying asset has a price of ##S## dollars.
What is an expression for the payoff at maturity ##(f_T)## in dollars from owning (being long) the put option?
Question 432 option, option intrinsic value, no explanation
An American style call option with a strike price of ##K## dollars will mature in ##T## years. The underlying asset has a price of ##S## dollars.
What is an expression for the current intrinsic value in dollars from owning (being long) the American style call option? Note that the intrinsic value of an option does not subtract the premium paid to buy the option.
Question 443 corporate financial decision theory, investment decision, financing decision, working capital decision, payout policy
Business people make lots of important decisions. Which of the following is the most important long term decision?
Which of the following is NOT a valid method to estimate future revenues or costs in a pro-forma income statement when trying to value a company?
High risk firms in danger of bankruptcy tend to have:
A company conducts a 10 for 3 stock split. What is the percentage increase in the stock price and the number of shares outstanding? The answers are given in the same order.
You deposit money into a bank. Which of the following statements is NOT correct? You:
A stock, a call, a put and a bond are available to trade. The call and put options' underlying asset is the stock they and have the same strike prices, ##K_T##.
Being long the call and short the stock is equivalent to being: