Question: how did he get the answer 0.9 ? please answer step by step thank youu Exercise 13 Consider a single period binomial setting where the

how did he get the answer 0.9 ? please answer step by step thank youu

Exercise 13 Consider a single period binomial setting where the risk-free interest rate is zero, and there are no taxes. A firm consists of a machine that will produce cash flows of $200 the economy is good and $60 if the economy is bad. The good and bad states occur with equal probability Initially, the firm has 100 shares Assume that outstanding debt with a face value of $50 is due at the end of the period. Suppose the firm unexpectedly announces that it will issue additional debt This debt will be the same seniority with respect to existing debt and will have a face value of $50 The firm will use the entire proceeds to repurchase some of the outstanding shares. What is the price that the firm should offer in order to make existing shareholders to be indifferent between setting and not selling? 00 B) 09 C) 01 D) 009

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock blur-text-image

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

I am working on a homework problem and am stumped on part B. Kim hotels is interested in developing a new hotel in seoul. The company estimates that the hotel would require an initial investment of...

These Questions were graded incorrect. Please provide correct answer and explanation as to why my answers are wrong Table 1 David Michael Q1A call option expiring in 2 months has a market price of...

SEE "DOCUMENT 1" FOR CRITERIA 2 "DOCUMENT 2" FOR CRITERIA 4 You are to write a 3 to 4 page paper following APA rules for the title page, citations and appropriate references within the body of the...

SEE "DOCUMENT 1" FOR CRITERIA 2 "DOCUMENT 2" FOR CRITERIA 4. You are to write a 2 to 4 page paper following APA rules for the title page, citations and appropriate references within the body of the...

I need your help with this: Can you please quote from the attached chapters / resource if possible? Corporations often use different costs of capital for different operating divisions. Using an...

give correct only678 16. Consider three stocks: Q. R and S. Beta STD (annual) Forecast for Nov 2008 Dividend Stock Price Q 0.45 35% $0.50 $45 R 1.45 10% 0 $75 S -0.20 40% $1.00 $20 33 2008, Andrew W....

Monash BFF5915 individual assignment Q4.Consider a European call option on a non-dividend-paying stock where the stock price is AUD 40, the strike price is AUD 40, the risk-free rate is 4% per annum,...

i want the correct answers for this mathematic go up by % 18 or fall by 19 %. if the one-perlod risk free rate is 2%. (4 marks, ) Suppose a stocks is currently trading for 64, and in one period will...

There is still some uncertainty about when and how and if the US will switch over to international financial reporting standards. The sec has not yet decided whether or not to proceed with...

Alcorta expects to generate annual earnings of $50 million in perpetuity. The company has a payout ratio of 90% and a cost of equity of 12%. The corporate tax rate is 30% and shareholders fully...

When interest rates increase, which of the following strategies woild most likely be helphal to take atvantage of the decrease in the valie of foed income securties ? Bullet strategy. Credit swap....

Given the same salvage value, cost and life span of an asset does conventional or simplified give a higher annual depreciation over the life of the asset? Conventional Simplified Each method results...