Question 1
Option Pricing Model Assignment : Do NOT attempt to complete this assignment until you have completed all of the class assignments through Module 10. You can start reading about the company, which is Whole Foods, Inc., but you need to understand the Greeks and the Black Scholes model in order to do this assignment correctly. If you have kept up with the class assignments, you should not have any trouble with this assignment. If you are behind, please get caught up before you attempt this assignment. Most of the poor grades earned on this assignment happen because students have not mastered the class material to date. An equal number of poor grades result because students do not follow the directions and/or just don?t answer the questions. You MUST complete and turn in this assignment on time in order to pass the class. If you cannot do this assignment, you will NOT pass the final exam. If you decide not to do this assignment, you have an ?F? in this class. Please list your answer to each question, by question number. I grade on quality not quantity. If you use outside sources, you MUST properly reference them. If you are not familiar with standardized referencing, please go to www.citationmachine.net for assistance. My preference as to style is APA. Please pay attention to your grammar, format and spelling ? points will be deducted for errors in these areas besides errors in content. Please upload your assignments to the Assignment Drop Box. Your assignment is to value two (2) call options, using two (2) different option-pricing calculators, and/ or pricing programs. Therefore, your answer will include 4 valuations (2 for each expiration). Some places to look for option pricing models are Google, Yahoo! Finance, and the State Farm Financial Literacy Lab (CBC 252). Using a basic Black Scholes model from two different resources does NOT fulfill the requirements of this assignment ? two DIFFERENT pricing models are required. Please think outside of the box. You must properly reference the sites or sources where you found your pricing models. The two calls you are to value are: 1. The Jan 2014 $65 Whole Foods call option ($65 is the strike price) 2. The May 2014 $65 Whole Foods call option ($65 is the strike price) Use a standard deviation of 20 and a risk free rate of 1%. 1. Copy and paste your quantitative results into a word document and explain your results. If there is a difference between the results that your two models arrive at, please discuss why you think this happened. You MUST provide a properly referenced citation for where you obtained your model in the form of a footnote to your answer to this question. 2. Compare the Jan 2014 call Greeks and the May 2014 call Greeks and explain why there are differences for EACH Greek (include Delta, Gamma, Theta, Vega & Rho). No credit will be given if you just provide the definitions of the Greeks & I would prefer if you omitted basic definitions and references to the puts; you must apply the definitions to the situation and be specific. 3. Go to Yahoo! Finance and look up the actual market prices (premiums) for these two calls (please indicate the date and time of the quotes in your answer). Explain why you believe the calculated price may not be the same as the actual market price. 4. Based upon your research, take a position in Whole Foods? either bullish or bearish and explain how you would act on your opinion in the market, using what you have learned in this class ? what would you buy or sell and why; what might your potential profit and loss be (specific numbers are required); why is your choice the best choice for capitalizing on your opinion. You can use actual share transactions and/or naked or covered derivatives of any month or strike; you are not limited to the calls that you are analyzing in this assignment. The assumption is that you have no existing positions in Whole Foods stock or Whole Foods derivatives. Doing nothing is not an acceptable answer. Please keep in mind that this is more of a critical thinking exercise than a quantitative exercise. I will assess your answer to #1 & # 4 (the calculations) in a quantitative manor, but the rest of your assignment will be assessed on how well you present and explain your results. If you use any outside sources, you MUST reference them properly ? see www.citationmachine.net for referencing assistance.
Question 2
Question 3 (20 marks) Stephen and Camilla have a combined annual gross salary of $90,000. They pay $400 monthly on their credit cards balances and $600 monthly towards their car loan. They bought a condominium 2 years ago for $210,000, with a down payment of 30 percent. They took out a 6.95 percent, 5-year Canadian mortgage amortized over 25 years. The monthly condominium fee is $400 and the annual property tax bill is $3,000. Required: (a)What is the current monthly mortgage payment? (4 marks) (b)How long will it take them to pay off the mortgage if they decided to make bi-weekly payments? Assume that there are 52 weeks in a year. (4 marks) (c)Now, after making monthly payments for two years as computed in part (a), they want to sell their condominium for $240,000. They estimate that legal and real estate fees will be about 4 percent of the selling price. They are considering a house in the $360,000-380,000 price range, on which they would like to have a down payment of 25 percent and on which the monthly property tax is $310. Will they have the 25 percent down payment from selling their condominium? (6 marks) (d) Instead of selling their condominium, Stephen and Camilla are considering applying for a five-year investment loan in the amount of $50,000. The annual interest rate is 6 percent, with blended monthly payments. Will they qualify for the investment loan? (6 marks)
Question 3
1. In each of the following independent situations involving transfers of tangible property, determine which transfer pricing methods applies and compute a transfer price using the appropriate method. Show all of your computations. a. Dougco, a domestic corporation, owns 100% of Thaico, a Thailand corporation. Dougco manufactures top-of-the-line offi ce chairs at a cost of $300 per unit and sells them to Thaico, which resells the goods (without any further processing) to unrelated foreign customers for $450 each. Independent foreign distributors typically earn commissions of 20% (expressed as a percentage of the sales price) on the purchase and resale of products comparable to those produced by Dougco b. Clairco, a domestic corporation, owns 100% of Shuco, a foreign corporation that manufactures women?s running shoes at a cost of $30 each and sells them to Clairco. Clairco attaches its trade name to the shoes (which has a significant effect on their resale price), and resells them to unrelated customers in the United States for $80 each. Independent foreign manufacturers producing similar running shoes typically earn a gross profit mark-up (expressed as a percentage of the manufacturing costs) of 15%. c. Tomco, a domestic corporation, owns 100% of Swissco, a Swiss corporation. Tomco manufactures riding lawn mowers at a cost of $2,500 per unit, and sells them to unrelated foreign distributors at a price of $3,750 per unit. Tomco also sells the equipment to Swissco, which then resells the goods to unrelated foreign customers for $4,250 each. The conditions of Tomco?s sales to Swissco are essentially equivalent to those of the sales made to unrelated foreign distributors. 2. USAco, a domestic corporation, forms a Canadian subsidiary, CANco, to distribute USAco?s widgets in Canada. USAco sells widgets to CANco for resale in Canada, provides CANco with USAco?s unique distribution software, and provides the use of USAco?s collections staff to collect receivables from delinquent accounts. a. What are the intercompany transactions that USAco must price at arm?s length? b. What compliance techniques may USAco employ to minimize the risk of a transfer pricing penalty? 3. Erica is a citizen of a foreign country, and is employed by a foreign-based computer manufacturer. Erica?s job is to provide technical assistance to customers who purchase the company?s mainframe computers. Many of Erica?s customers are located in the United States. As a consequence, Erica consistently spends about 100 working days per year in the United States. In addition, Erica spends about 20 vacation days per year in Las Vegas, since she loves to gamble and also enjoys the desert climate. Erica does not possess a green card. Assume that the United States has entered into an income tax treaty with Erica?s home country that is identical to the United States Model Income Tax Convention of November 15, 2006. a. How does the United States tax Erica?s activities? How would your answer change if Erica were a self-employed technician rather than an employee? 4. Finco is a wholly owned Finnish manufacturing subsidiary of Winco, a domestic corporation that manufactures and markets residential window products throughout the world. Winco has been Finco?s sole shareholder since Finco was organized in 1990. At the end of the current year, Winco sells all of Finco?s stock to an unrelated foreign buyer for $25 million. At that time, Finco had $6 million of post-1986 undistributed earnings, and $2 million of post-1986 foreign income taxes that have not yet been deemed paid by Winco. Winco?s basis in Finco?s stock was $5 million immediately prior to the sale. a. Assume Winco?s capital gain on the sale of Finco?s stock is not subject to any foreign taxes, and that the U.S. corporate tax rate is 35%. What are the U.S. tax consequences of this sale for Winco? b. Now assume that instead of selling the stock of Finco, Winco completely liquidates Finco, and receives property with a market value of $25 million in the transaction. As in the previous scenario, at the time of the liquidation, Finco had $6 million of accumulated earnings and profi ts, and $2 million of foreign income taxes that have not yet been deemed paid by Winco. Assume that Winco?s basis in Finco?s stock was $5 million immediately prior to the liquidation, and that the U.S. corporate tax rate is 35%. What are the U.S. tax consequences of this liquidation for Winco?
Question 4
"Photochronograph Corporation (PC) manufactures time series photographic equipment. It's currently at its target debt-equity ratio of .70. It's considering building a new $45 million manufacturing facility. This new plant is expected to generate aftertax cash flows of $6.2 million in perpetuity. The company raises all equity from outside financing. There are three financing options 1. A new issue of common stock : The floatation costs of the new common stock would be 8 percent of the amount raised. The required return on the company's new equity is 14 percent. 2. A new issue of 20-year bonds: The floation costs of the new bonds would be 4 percent of the proceeds. If the company issues these new bonds at an annual coupon rate of 8 percent, they will sell at par. 3. Increased use of accounts payable financing: Because of this financing is part of the company's ongoing daily business, it has no floation costs, and the company assigns it a cost that is the same as the overall firm WACC. Managemetn has a target ratio of accounts payable to long term debt of .20. (Assume there is no difference between the pretax and aftertax accounts payable cost.) What is the NPV of the new plant? Assume that PC has a 35 percent tax rate."
Question 5
I think I already sent to you this assaingment, but I didn't get it yet. So I send to you again. Alicia Summers is a vice president at Harbor State Bank in Boston. During 2007, she worked for the bank all year at a $6,500 monthly salary. She also earned a year end bonus equal to 15% of her annual salary. Summers's federal income tax withheld during 2007 was $820 per month plus $2,480 on her bonus check. State income tax withheld came to $60 per month, plus $80 on the bonus. The FICA tax withheld was 7.65% of the first $94,200 of annual earnings. Sumnmer authorized the following payroll ded8ct90js: United Way contribution of 1% of total earnings and life insurance of $20 per month. Harbor State Bank incurred payroll tax expense on Summers for FICA tax of 7.65% of the forst $94,200 in total annual earnings. The bank also paid state unemployment tax of 5.4% and federal unemployment tax of 0.8% on the first $7,000 in annual earnings. The bank provided Summers with the followin gbenefits: health insurance at a cost of $40 per months, and retirement benefits of $4,000 for 2007. Requirement 1. Compute Summer's gross pay, payroll deductions, and net pay during 2007. 2. Compute the bank's total 2007 payroll expense for Summers. 3.Prepare the bank's summary journal entries to record: a. Summers' total earnings for the year, her payroll deductions, and her net pay. Debit Salary Expense and Executive Bonus compensation Expense as appropriate. Credit appropriate liability accounts for the payrpll deductions and Cash for net pay. b. Employer payroll taxes for Summers. c. Benefits provided to Summers. Round all amounts to the nearest dollar. Explanations are not required. Could you answer the question on the attached file? I thik I already asked this assaingment... Thank you .
