1. OwnItAll (OIA) is a holding company whose sole business is to ow...

1. OwnItAll (OIA) is a holding company whose sole business is to own a portfolio of shares. The company has 200 million shares outstanding, listed on the PSE.
a. Given the current portfolio of OIA, what should be its share price? (There's a template on the disk that comes with the book.)
                A             B             C
1                OIA PORTFOLIO
                     Number of       Share
2    Stock       shares          price
3       IBM      1,500,000       92.89
4    Ahold      5,250,000       8.23
5    Kellogg      385,259       45.29
6   General    12,000,000    36.64
      Motors
7   Microsoft    1,000,000    26.18
8    AT&T       98,000,000    19.89
9      SBC       12,000,000    23.42
10   Merck      15,000,000    28.02
11    Nicor       2,000,000    36.42
12   Duke       25,000,000    26.14
       Power
b. The actual market price of OIA's shares is $25 per share. What can you conclude from this fact?
2. a. Walters, Inc. has an anticipated next-year FCF of $10 million. This cash flow is anticipated to grow at an annual rate of 5%. If the FCFs occur at year end and if the WACC of Walters is 15%, what is the enterprise value of the company?
3. a. Houda Motors has just announced results that show that the FCF for the past year is $23 million. An experienced analyst believes that the growth rate of the FCF for the next 10 years will be 25% per year and that after 10 years the growth rate will be 7% annually. Houda's WACC is 18%, and the company has 100 million shares outstanding. Value the shares assuming that the FCFs occur at vear end. Houda has no debt and no excess cash reserves.

8. Hectoritis Corp. currently has an FCF of $13 million. A reputable analyst estimates that this FCF is anticipated to increase by 12% per year for the next 5 years. The analyst estimates that at the end of 5 years the company's terminal value will be based on the year-5 FCF and a long-term FCF growth rate of 4%. Suppose the Hectoritis ß= 1.5, the Tf = 3%, the market risk premium E (TM) -rf = 14%, and Hectoritis has 8 million shares outstanding. How should the analyst value the shares of the company? Assume all cash flows occur at year end.

8. It is 15 December 2006, and John is considering buying 100 shares of GoodLuck stock (the stock price is currently $40 per share). On the same date, Mary is considering shorting 100 shares of GoodLuck stock. If both John and Mary intend to close out their positions on 1 April 2007, fill in the following table and graph their profits.
          A                               B                            C
GoodLuck stock
price, 15 Dec 06   $       40.00
2
3 GoodLuck stock    John's profit from      Mary's profit
    price on 1 Apr 07   buying 100 shares    from shorting
                                                                  100 shares
4       $0.00
5       $10.00
6       $20.00
7       $30.00
8       $40.00
9       $50.00
10    $60.00
11    $70.00
12    $80.00
13    $90.00
14    $100.00

12. A put option written on ENERGY-R-US Corp.'s stock is selling for $2.50. The option has an exercise price of $20 and 6 months to expiration. The current market price for a share of ENERGY- R-US is $26. Determine the profit from a strategy of buying the stock and buying the put; graph these profits. Use the following template.
       A                            B                      C                      D
1 Energy-R-Us, stock   26.00
2 Put price, X = 20         2.50
3
                                                             Profit
   Stock price, ST         Profit                from             Total profit
      in 6 months         from put             stock
4                                                                     
5             0
6             5
7            10
8            15
9°          20
10          25
11          30
12          35
13          40
14          45
15          50

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