Please see 3 questions in attached excel file

The exercise price on one of ORNE Corporation's put options is $30 and the price of the underlying stock is $25. The option will expire in 25 days. The option is currently selling for $5.50. (a,b,c,d,e)

The Marchal Company is evaluating the proposed acquisition of a new machine. The machine's base price is $250,000, and it would cost another $15,000 to modify it for special use. The machine falls into the MACRS 3-year class, and it would be sold after 2 years for $75,000. The machine would require an increase in net working capital of $5,000. The machine would have no effect on revenues, but it is expected to save the firm $100,000 per year for 2 years in before-tax operating costs. Campbell's marginal tax rate is 30 percent and its cost of capital is 10 percent. (a,b,c,d)

An investment banker enters into a best efforts arrangement to try and sell 8 million shares of stock at $20 per share for Kemp Corporation. The investment banker incurs expenses of $2.5 million in floating the issue while the company incurs expenses of $1 million. The investment banker will receive 7 percent of the proceeds of the offering.(a,b,c,d,e)

A 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 B C D E F G H Question 1. (15 points) The exercise price on one of ORNE Corporation's put options is $30 and the price of the underlying stock is $25. The option will expire in 25 days. The option is currently selling for $5.50. a. Calculate the option's exercise value? b. Calculate the value of the premium over and above the exercise value? Why would an investor pay more than the exercise value for the option. c. Is this an out-of-the money option, at-the-money, or in-the-money? Why? d. What will happen to the time and exercise value of the option if the underlying stock price changes to $24? Why? e. Would the value of the option likely be higher, lower, or the same if the option had 60 days to expiration instead of 25? Why? Brigham 14e Page 1 of 3 07/02/2015 A 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 B C D E F Question 2. (15 points) The Marchal Company is evaluating the proposed acquisition of a new machine. The machine's base price is $250,000, and it would cost another $15,000 to modify it for special use. The machine falls into the MACRS 3-year class, and it would be sold after 2 years for $75,000. The machine would require an increase in net working capital of $5,000. The machine would have no effect on revenues, but it is expected to save the firm $100,000 per year for 2 years in before-tax operating costs. Campbell's marginal tax rate is 30 percent and its cost of capital is 10 percent. a. Calculate the cash outflow at time zero. b. Calculate the net operating cash flows for Years 1 and 2. c. Calculate the non-operating terminal year cash flow. d. Calculate NPV. Should the machinery be purchased? Why or why not? Cost of capital Brigham 14e Page 2 of 3 07/02/2015 A 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 B C D E F Question 5. (15 points) An investment banker enters into a best efforts arrangement to try and sell 8 million shares of stock at $20 per share for Kemp Corporation. The investment banker incurs expenses of $2.5 million in floating the issue while the company incurs expenses of $1 million. The investment banker will receive 7 percent of the proceeds of the offering. a. If the offering is successful and sells out at the expected price of $20, how much money will the company receive? b. If the offering is successful and sells out at the expected price of $20, how much money will the investment banker receive? c. If the offering is partially successful and 6 million shares are sold at a price of $15, how much does the company receive? d Same facts as part c. How much does the investment banker receive? e. Who bears more risk with a best efforts deal, the company or the investment banker? Why? . Brigham 14e Page 3 of 3 07/02/2015