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FIN 401 Study Guide - Final Guide: Option Style, Call Option, Imperial Bank Of Canada


Department
Finance
Course Code
FIN 401
Professor
Alan Kaplan
Study Guide
Final

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FALL 07
If the firm in the prior question does not achieve its breakeven EBIT (i.e., earns less than its
breakeven EBIT):The firm will have a higher EPS if is an all equity firm in comparison to
having debt in its capital structure.The cum-div. date is Always before the date of
recordStock prices most com.ly fall on the ex-div. dateA start-up software company is likely
to have the lowest debt/equity ratio an implication of M&M Proposition I, without taxes?: The
WACC will not change regardless of the capital structure decisionSome good reason(s) for
leasing according to the text book are: a)Taxes may be reduced b) May reduce uncertainty c)It is
a source of cash...I only or/and I, II and IIIpossible CF benefits of mergers and acquisition
according to the textbook:Revenue Enhancement&Changing capital requirementsIf the
shareholders of an acquired firm capture all of the merger's gain, but no more than that, then
the:NPV of the merger is zeroSun Life Financial acquired Clarica Life in 2001. Both are
Insurance companies. This is an example of a horizontal acquisition.features of the purchase
method of accounting? The assets of the target firm must be shown at their fair market value on
the books of the bidder. & The difference between the purchase price and the estimated fair
market value of the net assets of the target firm must be ctlassified as goodwill and recorded on
the balance sheet.IPO: sale of equity, public first Div. policy is irrelevant when there are no
taxes or other market imperfections alternatives to paying div.: Select additional capital
budgeting projects, Repurchase shares, Acquire other companies, Purchase financial
assetsbased on M&M Proposition II, without taxes?: The cost of equity varies directly with the
D/E ratio of the firmfirm commitment offering is Underwriting where the syndicate buys the
entire issue from the issuing firm, assuming full financial responsibility for any unsold shares
record date of Friday, July 22 for its rights offering. What is the ex-rights date?: Monday, July 18
shares go ex-div. 2 days before the date of record, but shares go ex-rights four days before
the date of recordCross-hedging.: Hedging an asset with contracts written on a similar, but
not identical, asset.put option is a derivative security that gives the owner the right, but not the
obligation, to sell an asset at a fixed price for a specified period of time.you believe that the
price of SDRInc. stock will fall by 30% by the end of the year. As an inv.tor, you should:Buy
puts on STR stocks.A stock currently sells for $16.50. A call option on the stock has an
exercise price of $18.00. The call currently sells in the market for $2.50. Which of the following
is true?: The time value associated with the call option is $2.50You purchased a May American
call option on Netscape stock with an exercise price of $165. thereforeYou have the right to buy
Netscape shares for $165 at any time prior to the option expiration, regardless of the stocks
market price.A proposed acquisition of Canadian Imperial Bank of Commerce (CIBC) by
Bank of Nova Scotia can best be classified as: Horizontal acquisition. Generally shareholders
of an acquiring company seem to benefit very little from takeovers. Some possible
explanation(s) are:Mgt. may not be acting in shareholders interests & Realized synergies may be
less than expected synergies Why will this lease NOT have a positive NAL for both the lessee
and the lessor, regardless of how the lease is priced? The lease will not have a positive NAL for
both parties because the tax rate is the same for both sides and there are no other market
imperfections.If the equipment had belonged in the 50% CCA class instead of the 30% CCA
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