Question
The current price of ABC's stock is $48. In the next period, the stock price will either rise to $78 or fall to $13. ABC
The current price of ABC's stock is $48. In the next period, the stock price will either rise to $78 or fall to $13. ABC does not pay dividends. The risk-free rate is 1%. What is the price of a call that expires in one period and has a strike price of $37? RABC Co. is an all-equity firm with 48 million shares outstanding. It expects FCFs of $72 million per year, and currently has $149 million in excess cash. ABC has a cost of capital of 8%. The CEO proposes to use the excess cash to expand ABC's operations. This expansion will increase free cash flows by g% in perpetuity. Alternatively, ABC may choose to retain the excess cash. What is g such that the CEO would be indifferent between both options?
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Authors: Zvi Bodie, Alex Kane, Alan J. Marcus
9th Edition
73530700, 978-0073530703
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