Fundamentals Of Corporate Finance 3rd Edition Jonathan Berk ,Peter Demarzo ,Jarrad Harford ,Guy Ford ,Vito Mollica - Solutions

Unlock the insights of "Fundamentals of Corporate Finance 3rd Edition" with our comprehensive solution manual, featuring step-by-step answers and solved problems to enhance your understanding. Explore our online resources for free download, including a detailed answers key and solutions PDF, catering to all your academic needs. Dive into chapter solutions and instructor manuals, providing clear questions and answers for every test bank query. Whether you're looking for textbook guidance or need to access the complete solutions, our expertly crafted content ensures you have the tools to succeed in your finance studies.

Your firm needs to raise $100 million in funds. You can borrow short term at a spread of 1.0% over the Australian Bank Bill Swap Rate (BBSW). Alternatively, you can issue 10-year, fixed-rate bonds at a spread of 2.5% over 10-year Commonwealth government securities, which currently yield 2.8%.
Assume each of the following securities has the same yield-to-maturity: a five-year, zero-coupon bond;a nine-year, zero-coupon bond; a five-year annuity; and a nine-year annuity. Rank these securities from lowest to highest duration.
Suppose Gloria Jean’s Coffee consumes 100 million kilograms of coffee beans per year. As the price of coffee rises, Gloria Jean’s expects to pass along 60% of the cost to its customers through higher prices per serving of coffee. To hedge its profits from fluctuations in coffee prices, Gloria
Your utility company will need to buy 100000 barrels of oil in 10 days’ time, and it is worried about fuel costs. Suppose you go long (buy) 100 oil futures contracts, each for 1000 barrels of oil, at the current futures price of $60 per barrel. Suppose futures prices change each day as follows:a.
BHP Billiton is the world’s largest mining firm. BHP expects to produce two billion kilograms of copper next year, with a production cost of $3.50 per kilogram.a. What will be BHP’s operating profit from copper next year if the price of copper is $6.50, $7.00 or$7.50 per kilogram, and the firm
Your firm faces a 9% chance of a potential loss of $10 million next year. If your firm implements new policies, it can reduce the chance of this loss to 4%, but these new policies have an up-front cost of$100000. Suppose the beta of the loss is 0, and the risk-free interest rate is 5%.a. If the
Your business imports manufactured goods from China. You are worried that tensions in the South China Sea could disrupt Australia–China trade, leading to a moratorium on imports from China. In the event of a moratorium, you expect your operating profits to decline substantially and your marginal
Techtonic’s main facility is located in Far North Queensland. Suppose that Techtonic would experience a direct loss of $450 million in the event of a major flooding that disrupted its operations. The chance of such a flooding is 2% per year, with a beta of –0.5.a. If the risk-free interest rate
The North West Shelf (NWS) Project is a joint venture between six major international companies. It is operated by Woodside Petroleum (ASX:WPL), and is Australia’s largest oil and gas development. NWS is concerned that a major cyclone could disrupt its pipelines, which run 700 kilometres off the
How can a firm use a swap to manage its interest rate risk?
How can a firm become exposed to interest rate risk?
Can hedging lead to losses?
What are some common approaches to hedging commodity price risk?
How can an insurance company mitigate adverse selection and moral hazard?
Why is it possible for a firm to pay an actuarially fair price for insurance and still have the insurance purchase be a positive NPV investment?
How do firms manage interest rate risk?
What is the intuition behind the calculation of duration?
What are the potential risks associated with hedging using futures contracts?
Discuss risk management strategies that firms use to hedge commodity price risk.
Identify the costs of insurance that arise due to market imperfections.
How can insurance add value to a firm?
For Ityesi Packaging’s UK project example in Table 22.4, assume all sales actually occur in Australia and are projected to be A$60 million after-tax per year for four years. Keep all of the other assumptions in the text relating to exchange rates, interest rates, tax rates and the firm’s WACC
Suppose the interest on Russian government bonds is 7.5%, and the current exchange rate is 44 rubles per Australian dollar. If the forward exchange rate is 45 rubles per Australian dollar, and the current Australian risk-free interest rate is 2.5%, what is the implied credit spread for Russian
Peripatetic Enterprises, an Australian import–export trading firm, is considering its international tax situation. Tax law in Australia requires Australian corporations to pay taxes on their foreign earnings at the same rate as profits earned in Australia; this rate is currently 30%. However, a
Zink & Sons is considering the tax benefits resulting from deferring repatriation of the earnings from the subsidiary. Under Australian tax law, the Australian tax liability is not incurred until the profits are brought back home. Zink & Sons reasonably expects to defer repatriation for 10 years,
Zink & Sons, an Australian maker of fine menswear, has a subsidiary in Ethiopia. This year, the subsidiary reported and repatriated earnings before interest and taxes (EBIT) of 100 million Ethiopian birrs. The current exchange rate is 16 birr/AUD, or S = A$0.0625/birr. The Ethiopian tax rate on
Manzetti Foods, an Australian food processing and distribution company, is considering an investment in Germany. You are in Manzetti’s corporate finance department and are responsible for deciding whether to undertake the project. The expected free cash flows, in euros, are uncorrelated to the
The Australian dollar cost of debt for Gilchrist Consulting, an Australian HR consulting firm, is 7.5%.The firm faces a tax rate of 30% on all income, no matter where it is earned. Managers in the firm need to know its yen cost of debt because they are considering launching a new bond issue in
Subiaco Lighthouse, an Australian manufacturer of light fixtures, is considering an investment in Japan.The Australian dollar cost of equity for Subiaco Lighthouse is 11%. You are in the corporate treasury department, and you need to know the comparable cost of equity in Japanese yen for a project
You are doing work for a US-based client, and they have asked you to estimate the cost of capital for countries using the euro. You know that S = US$1.10/€ and Fl= US$1.127/€. Suppose the US dollar WACC for your client’s company is known to be 8%. If these markets are internationally
El Paso Industries is still considering a new project in Portugal. All information presented in Problem 7 is still accurate, except the spot rate is now S = US$1.25/€, about 14% lower. What is the new present value of the project in dollars? Should El Paso Industries undertake the project?
You know that the spot exchange rate is S = US$1.45/€. In addition, the risk-free interest rate on US dollars is 2% and the risk-free interest rate on euros is 1%.Assume that these markets are internationally integrated and the uncertainty in the free cash flows is not correlated with uncertainty
Mia Caruso Enterprises, an Australian manufacturer of children’s toys, has made a sale in Chile and is expecting a CLP4 million cash inflow in one year. (The currency of Chile is the Chilean peso, and is denoted by the currency code CLP.) The current spot rate is S = CLP495/AUD and the one-year
You are an Australian investor who is trying to calculate the present value of a €5 million cash inflow that will occur one year in the future. The spot exchange rate is S = A$1.40/€ and the forward rate is Fl= A$1.4139/€. You estimate that the appropriate dollar discount rate for this cash
You are a broker for frozen seafood products for Elite Products. You just signed a deal with a Belgian distributor. Under the terms of the contract, in one year you will deliver 4000 kilograms of frozen king crab for €100000. Your cost for obtaining the king crab is A$110000. All cash flows occur
Your start-up company has negotiated a contract to provide a database installation for a manufacturing company in Poland. That firm has agreed to pay you A$100000 in three months’ time when the installation will occur. However, it insists on paying in Polish zloty (PLN). You don’t want to lose
Your firm needs to pay its French supplier €500000. If the exchange rate is €0.70/AUD, how many dollars will you need to make the exchange?
You have just landed in London with $500 in your wallet. Stopping at the foreign exchange booth, you see that pounds are being quoted at A$1.65/£. For how many pounds can you exchange your $500?
How does exchange rate risk affect our approach to valuation?
If international markets are segmented, how does that change the way the financial manager approaches valuation problems?
How are Australian firms taxed on their foreign earnings?
What assumptions are necessary to value foreign cash flows using the domestic WACC method?
What does it mean to say that international capital markets are integrated?
What are the differences between hedging exchange rate risk with options versus forwards?
What are some reasons a financial manager would need to access the foreign exchange market?
How is an exchange rate used?
What is the main implication for international corporate finance of a segmented financial market?
What are the reasons for segmentation of capital markets?
How can an Australian firm lower its taxes on foreign projects?
What tax rate should we use to value a foreign project?
When do these two methods give the same NPV of the foreign project?
Explain two methods we use to calculate the NPV of a foreign project.
What implications do internationally integrated capital markets have for the value of the same asset in different countries?
What assumptions are needed to have internationally integrated capital markets?
Why might a firm prefer to hedge exchange rate risk with options rather than forward contracts?
How can firms hedge exchange rate risk?
Why would multinational companies need to exchange currencies?
What is an exchange rate?
You work for a leveraged buyout firm and are evaluating a potential buyout of UnderWater Corporation.UnderWater’s share price is $20, and it has two million shares outstanding. You believe that if you buy the company and replace its management, its value will increase by 40%. You are planning on
BAD Company’s share price is $20, and the firm has two million shares outstanding. You believe you can increase the company’s value if you buy it and replace the management. Assume that BAD has a poison pill with a 20% trigger. If it is triggered, all BAD’s shareholders—other than the
Alpha has one million shares outstanding, each of which has a price of $20. It has made a takeover offer of Beta Corporation, which has one million shares outstanding and a price per share of $2.50. Assume that the takeover will occur with certainty and all market participants know this.
Let’s reconsider part (b) of Problem 1. The actual premium that your company will pay for TargetCo when it completes the transaction will not be 20%, because on the announcement the target price will go up and your price will go down to reflect the fact that you are willing to pay a premium for
The MTGG Corporation has announced plans to acquire HH Corporation. MTGG is trading for $35 per share and HH is trading for $25 per share, implying a pre-merger value of HH of $4 billion. If the projected synergies are $1 billion, what is the maximum exchange ratio MTGG could offer in a share swap
Apollo Limited and Minerva Limited have entered into a share-swap merger agreement whereby Apollo will pay a 40% premium over Minerva’s pre-merger price. If Minerva’s pre-merger price per share was $40 and Apollo’s was $50, what exchange ratio will Apollo need to offer?
You are invested in BlackBox Limited. The CEO owns 3% of BlackBox and is considering an acquisition. If the acquisition destroys $50 million of BlackBox’s value, but the present value of the CEO’s compensation increases by $5 million, will he be better or worse off?
If companies in the same industry as TargetCo (from Problem 1) are trading at multiples of 14 times earnings, what would be one estimate of an appropriate premium for TargetCo?
Your company has earnings per share of $4. It has one million shares outstanding, each of which has a price of $40. You are thinking of buying TargetCo, which has earnings per share of $2, one million shares outstanding and a price per share of $25. You will pay for TargetCo by issuing new shares.
How does a toehold help overcome the free rider problem?
Diversification is good for shareholders. So why shouldn’t managers acquire firms in different industries to diversify a company?
How do the ATO’s carry forward provisions affect the benefits of merging to capture operating losses?
If you are planning an acquisition that is motivated by trying to acquire expertise, you are basically seeking to gain intellectual capital. What concerns would you have in structuring the deal and the post-merger integration that would be different from the concerns you would have when buying
Why do you think shareholders from target companies enjoy an average gain when acquired, while acquiring shareholders on average often do not gain anything?
What are some reasons why a horizontal merger might create value for shareholders?
Why do you think mergers cluster in time, causing merger waves?
What are the two primary mechanisms under which ownership and control of a public corporation can change?
Based on the empirical evidence, who gets the value added from a takeover? What is the most likely explanation of this fact?
What mechanisms allow corporate raiders to get around the free rider problem in takeovers?
How can a hostile acquirer get around a poison pill?
What defensive strategies are available to help target companies resist an unwanted takeover?
What do risk arbitrageurs do?
What are the steps in the takeover process?
Explain why risk diversification benefits and earnings growth are not good justifications for a takeover intended to increase shareholder wealth.
What are the reasons most often cited for a takeover?
On average, what happens to the acquirer share price on the announcement of a takeover?
On average, what happens to the target share price on the announcement of a takeover?
What is the difference between a horizontal and a vertical merger?
What are merger waves?
Which strategy—the protective put or the straddle—provides the maximum upside potential for your uncle? Why does this occur?
What is the maximum possible loss your uncle could experience using the straddle?
Was the broker correct that the protective put would prevent your uncle from losing if the announcement caused a large decrease in the share value? What is your uncle’s maximum possible loss using the protective put?
Determine your uncle’s profit and return using the straddle.a. Calculate the investment your uncle would have to make to purchase the call and put with the same exercise price and expiration as the put option in Question 2, to cover all 10000 of his shares.b. Determine the value at expiration of
Determine your uncle’s profit and return using the protective put.a. Identify the expiring put with an exercise price closest to, but not below, the current share price.Determine the investment required to protect all 10000 shares.b. Determine the put price at expiration for each share price at
Download option quotes on CBA options that expire within the next month from the ASX website(www.asx.com.au). (Click ‘Prices & Research’ from the menu on the left, then click ‘Prices’, and then click the ‘Options’ tab. Enter the stock code ‘CBA’, select the current month and click
Express the position of a debt holder in terms of put options.
Express the position of an equity holder in terms of put options.
You happen to be checking the newspaper and notice an arbitrage opportunity. The current share price of Sky Media is $20 per share and the one-year risk-free interest rate is 8%. A one-year put on Sky Media with an exercise price of $18 sells for $3.33, while the identical call sells for $7.
Electra Energy Systems shares are currently trading for $33 per share. The share pays no dividends. A one-year European put option on Electra with an exercise price of $35 is currently trading for $2.10. If the risk-free interest rate is 10% per year, what is the price of a one-year European call
Why is an American option with a longer time to expiration generally worth more than an otherwise identical option with a shorter time to expiration?
What is the maximum value that a call option and a put option can have?
You own a Rio Tinto share. You are worried that its price will fall and would like to insure yourself against this possibility. How can you purchase insurance against a fall in the price of the share?

Showing 1 - 100 of 4501

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
Last

Fundamentals Of Corporate Finance 3rd Edition Jonathan Berk ,Peter Demarzo ,Jarrad Harford ,Guy Ford ,Vito Mollica - Solutions

Step by Step Answers