A gold-mining firm is concerned about short-term volatility in its revenues. Gold currently sells for $1,350 an ounce, but the price is extremely volatile and could fall as low as $1,250 or rise as high as $1,450 in the next month. The company will bring 1,150 ounces of gold to the market next month. a. What will be the total revenues if the firm remains unhedged for gold prices of (i) $1,250, (ii) $1,350, and (iii) $1,450 an ounce? b. The futures price of gold for delivery 1 month ahead is $1,360. What will be the firm's total revenues if the firm enters into a 1-month futures contract to deliver 1,150 ounces of gold? c. What will be the total revenues if the firm buys a 1-month put option to sell gold for $1,150 an ounce? The put option costs $33 per ounce.
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- A gold-mining firm is concerned about short-term volatility in its revenues. Gold currently sells for $1,550 an ounce, but the price is extremely volatile and could fall as low as $1,450 or rise as high as $1,650 in the next month. The company will bring 1,350 ounces of gold to the market next month. a. What will be the total revenues if the firm remains unhedged for gold prices of (i) $1,450, (ii) $1,550, and (iii) $1,650 an ounce? i. At $1,450 an ounce i. At $1,550 an ounce iii. At $1,650 an ounce b. The futures price of gold for delivery 1 month ahead is $1,570. What will be the firm's total revenues if the firm enters into a 1-month futures contract to deliver 1,350 ounces of gold? Total revenues c. What will be the total revenues if the firm buys a 1-month put option to sell gold for $1,350 an ounce? The put option costs $37 per ounce. Total revenuesA gold-mining firm is concerned about short-term volatility in its revenues. Gold currently sells for $2,100 an ounce, but the price is extremely volatile and could fall as low as $2,000 or rise as high as $2,200 in the next month. The company will bring 1,400 ounces of gold to the market next month. a. What will be the total revenues if the firm remains unhedged for gold prices of (i) $2,000, (ii) $2,100, and (iii) $2,200 an ounce? i. At $2,000 an ounce ii. At $2,100 an ounce ii. At $2,200 an ounce b. The futures price of gold for delivery 1 month ahead is $2,090. What will be the firm's total revenues if the firm enters into a 1-month futures contract to deliver 1,400 ounces of gold? Total revenuesThe A Company wishes to apply the Miller-Orr model to manage its cash investment. A's management has determined that the cost of either investing in or selling marketable securities is $200. By looking at A Company’s past cash needs, they have determined that the variance of daily cash flows is $10,000. A Company’s opportunity cost of cash, per day, is estimated to be 0.05%. A management has figured, based on their experience dealing with the cash flows of the company, that there should be a cushion— a safety stock—of cash of $20,000. Calculate the lower limit, the return point, and the upper limit based on the Miller-Orr model of cash management.
- A market research firm with current sales of $750 does not expect any growth in sales for the next two years. The company, however, anticipates that expenses, currently at $160, will increase to $240 next year and to $270 the year after. Assuming a tax rate of 34%, determine the firm’s cash flow in year two. Assume straight line depreciation of $50 each year. Select one: a. ($333.80) b. $389.40 c. ($389.40) d. $333.80 e. $366.00 Clear my choice(Related to Checkpoint 13.1) (Forecasting cash flows using the expected value) Koch Transportation is contemplating the acquisition of LH Transport, a competing trucking firm. Koch's CFO estimates that during the next year LH Transport's cash flows from the acquisition will vary depending on the state of the local economy: a. Calculate the expected cash flow for next year using the estimates provided above. b. Assume the probability of a recession increases to 38 percent, the normal scenario probability remains at 53 percent, and the expansion probability drops to only 9 percent. What is your estimate of the expected cash flow for next year under these circumstances? c. Your analysis of the acquisition suggests that for the investment to have at least a zero NPV, it must produce an annual expected cash flow of $83,610 per year over the next five years. Assuming that the cash flow you estimated in part a is the expected cash flow for Years one through five, what would you like to know…The current price of gold is $300 per ounce. Carrying costs in total are 0.5% (not including interest) of the gold value payable in 6 months time. If the interest rate is 8%, is there an arbitrage opportunity if the gold futures price for delivery in six months is $310 per ounce? B. If an arbitrage opportunity exists, explain how you would conduct it and calculate the arbitrage profit. C. Why is it not possible in reality to perfectly hedge a portfolio using Options and/or futures Instruments? D. Explain the shortcomings of LTCM’s financial strategy that led to its eventual downfall.
- A market research firm with current sales of $750 does not expect any growth in sales for the next two years. The company, however, anticipates that expenses, currently at $160, will increase to $240 next year and to $270 the year after. Assuming a tax rate of 34%, determine the firm’s cash flow in year two. Assume straight line depreciation of $50 each year. Select one: a. ($333.80) b. $389.40 c. ($389.40) d. $333.80 e. $366.001. The management of the Book Warehouse Company wishes to apply the Miller-Orr model to manage its cash investment. They have determined that the cost of either investing in or selling marketable securities is $100. By looking at Book Warehouse’s past cash needs, they have determined that the variance of daily cash flows is $20,000. Book Warehouse’s opportunity cost of cash, per day, is estimated to be 0.03%. Based on experience, management has determined that the cash balance should never fall below $10,000. Calculate the lower limit, the return point, and the upper limit based on the Miller-Orr model of cash management. 2. The Seminole Company wishes to apply the Miller-Orr model to manage its cash investment.…Suppose the current price of gold is $1,240 an ounce. Hotshot Consultants advises you that gold prices will increase at an average rate of 14% for the next two years. After that the growth rate will fall to a long-run trend of 2% per year. Assume that gold prices have a beta of O and that the risk-free rate is 6%. What is the present value of 1.2 million ounces of gold produced in 10 years? (Do not round intermediate calculations. Enter your answer in billions rounded to 2 decimal places.) Present value billion
- An American oil company is concerned about short-term volatility in the price of oil. The CFO is concerned about the impact of this volatility on its revenue especially with the company having concluded arrangements to bring 1,000 tons to the market. The CFO wants to know what the revenue will be for this 1,000 tons on the assumption that i. the firm remains unhedged and the oil price closes at £960 compared to ii. the firm buys a 1-month put option at a cost of £10 a ton to sell oil for £1,040 a ton? What is the total revenue of the company without the put option hedge and with the put option hedge? Without put option hedge With put option hedge £ £ A. 1,080,000 1,000,000 B. 960,000 1,030,000 C. 960,000 1,040,000…Veggie Burgers, Inc., would like to maintain its cash account at a minimum level of $252,000 but expects the standard deviation in net daily cash flows to be $12,700, the effective annual rate on marketable securities to be 5.4 percent per year, and the trading cost per sale or purchase of marketable securities to be $31.00 per transaction. What will be its optimal cash return point? (Use 365 days a year. Do not round intermediate calculations and round your answer to 2 decimal places.) Optimal cash return point $Maxwell Mining Company’s ore reservesare being depleted, so its sales are falling. Also, because its pit is getting deeper each year,its costs are rising. As a result, the company’s earnings and dividends are declining at theconstant rate of 6% per year. If D is $3 and rs is 10%, what is the value of Maxwell Mining’sstock?