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appealing to tenants other than General Mills. other than General Mills become more valuable than the benefit of General Mills being there. c. Static NPV cannot capture the flexibility component of being able to use the off campus building for […]

Revised Shockley, Chapter 10 Problems: Problem 1: Problem 2: ( )       + −= N ncy ncy Qk C1 1 1 * …simply remove “S” from the equation. In reality, free cash flows are generally […]

[10,071.49*10%]*0.448726 EXCH = -{-4,000 + [10,071.49*10%]*0.448726 – [10,071.49 – 4,596]*10.157781} ÷ [1,238.78*13.383451] EXCH = 3.5687529 – [10,071.49*10%]*0.448726 0 = [10,071.49 – 4,596]*10.157781 – [1,238.78*EXCH]*13.383451 – [10,071.49*10%]*0.448726 EXCH = -{[10,071.49*10%]*0.448726 – [10,071.49 – 4,596]*10.157781} ÷ [1,238.78*13.383451] EXCH = 3.3274860 Revised Shockley, […]

Revised Shockley, Chapter 12 Problems: Problem 1: prices with better precision (e.g. taken to the fourth decimal place $0.0001) would rectify the problem. an increase in price does change. ( ) 476.0 7408.03499.1 7408.0 02.005.0 = − − = − […]

Revised Shockley, Chapter 13 Problems: Problem 1: Expected Production (Tril. BTU): 17,588 Expected Spot price/MMBTU: $0.757515 $0.75*(1.005)2 Problem 2: Expected Production (Tril. BTU): 17,588 Expected Spot price/MMBTU: $0.686814 $0.68*(1.005)2 Sales Revenue (000): $12,079.685 $0.686814*17,588 Variable Cost (000): $4,397 $0.25*17,588 Operating […]

Revised Shockley, Chapter 14 Problems: Problem 1: Replacement of Figure 14.1: Q0 Q1 Q2 Q3 Q4 $ 100.00 $ 116.18 $ 134.99 $ 156.83 $ 182.21 $ 86.07 $ 100.00 $ 116.18 $ 134.99 $ 74.08 $ 86.07 $ 100.00 […]

{228,000*$250.00*5 + 95,000*$250.00*19}*(1 – 0.33) = $493,287,500 {87,500*$250.00*5 + (-45,500)*$250.00*19}*(1 – 0.33) = -$71,522,500 Consequently, -$474,856,558*(1 + 5.1271%) = $499,202,929 which is correct but is (-145,000)*16,672*(1 – 0.33) ÷ 1,000,000 = -$1,619.68 (-145,000)*11,175*(1 – 0.33) ÷ 1,000,000 = -$1,085.65 (-145,000)*7,491*(1 […]

Revised Shockley, Chapter 2 Answers: 1. discount rate = 6.75% = 3% + 0.75*(8% – 3%) Security Y generates a revenue of $4.00 while the short position in Security X generates an expense of $3.00 (a net gain of $1.00). […]

Revised Shockley, Chapter 3 Answers: Problem 1: a. Economy: Market Index: Risk-free Option: HMKT*$600.00 + HRF*$100.00 + HO*$0.00 = $8,000,000.00 HMKT*$350.00 + HRF*$100.00 + HO*$0.00 = $6,000,000.00 HMKT*$150.00 + HRF*$100.00 + HO*$50.00 = $4,400,000.00 HMKT = 8,000, HRF = 32,000, […]

Chapter 4: Complete Chapter Answers: Problem 1: Row 0: 1 Auuuud: 5 paths Auuudd: 10 paths Auuddd: 10 paths Audddd: 5 paths Addddd: 1 path   20 !3!*3 !6 3 6==         […]

Revised Shockley, Chapter 5 Answers: Problem 1: a binomial tree. Some rounding error may occur. $30 billion strike: 9422.01094.*268.10218.*859.36 =+ billion $10 billion strike: 8804.32198.*623.21094.*268.190218.*859.54 =++ billion Problem 2: The answers are calculated using state prices, but equivalent answers can […]

= (.39)6*$836.3 + 6*(.39)5*(.61)*$266.3 + 15*(.39)4*(.61)2*$56.6 + (4 terms that all equal zero) = $19.045 $19.045 ÷ (1 + 1.3%)6 = $17.62 The answer is “no” Revised Shockley, Chapter 6 Answers: Problem 1: Expected Future Payoff of the Option: Option […]

$12,614 ÷ ( 1 + 9.9%)6 = $7,159.25 Calculate the real WACC: (1 + 12%) ÷ (1 + 3%) – 1 = 8.74% Use the real WACC to discount the project’s cash flows three years due to the delayed start: […]

Revised Shockley, Chapter 8 Problems: Problem 1: If UNDi > K then given technical success, the outcome is [UNDi – K] – ptech* [UNDi – K] Problem 2: Today: Pre-Clinical: IND and Phase I: Phase II: Dec–03 Jun-04 Dec–04 Jun-05 […]

($62.00 – $2.00*exp(-14%*4/12))*exp(5%*6/12) = $61.61 -[ln($61.61) – ln($62.00) – 5%*(6/12)]*(12/6) = 6.26% APR U = 1.4191, D = 0.7047, P(U) = 49.99%, P(D) = 50.01% Call = [49.99%*Max($23.95*1.4191 – $22.50, 0) + 50.01%*Max($23.95*0.7047 – $22.50, 0)]*exp(-6%) = $5.41 to early […]