Finance Essay

301 WordsApr 6, 20152 Pages
Last Name: Cao Student Number: 10768750 Week no: 1 Tutorial group no: 14 Solutions to questions tutorials CH 2: 8 a. Market capitalization 2009 =10.5 × $10.80 per share=$113.4 billion Market capitalization 2010 =10.6 × $17 per share=$180.2 billion Change market capitalization =180.2-113.4=$66.8 billion b. Market-to-book ratio 2009 =113.4105=1.08 Market-to-book ratio 2010=180.2116=1.55 Change =1.55-1.08=0.47 c. Enterprise value 2009 =113.4+524-48=$589.4 billion Enterprise value 2010 =180.2+410-84=$326 billion Change in enterprise value =326-589.4=-$263.4 billion CH 3: 10 a. A: -10+$201.1=$8.18 B: 5+$51.1=$9.55 C: 20-$101.1=$10.91 b. It should choose project C, its NPV is the highest. c. It should choose project B and C, because its sum of NPV is highest. 11. a. Supplier 1: $100,000+10,000×$101.06=$194,339.62 Supplier 2: $21×10,0001.06=$198,113.21; the difference in their offers today =$198,113.21-$194,339.62=$3773.59; the firm should take offer from supplier 1, because the cost is lower. b. The firm can borrow from a bank with an interest rate of 6%. Borrow today $100,000; in one year =$100,000×1.06=$106,000; $106,000+$10×10,000=$206,000; still profitable compare to offer from supplier 2 which costs $210,000. 17. a. No- arbitrage price=$94+$85=$179 b. $500 in two years means 5 times security that pays $100 in two years. So, the no-arbitrage price is $94+5×$85=$519 c. $942+$85-$130=$2, the arbitrage opportunity is available for $2 per

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