Part 1
Suppose you have the following assumptions for an option.
Stock Price (S) – $45.00
Exercise Price (X) – $50.00
Time Until Maturity – 0.5 years
Risk-free interest rate – 3.0%
Volatility – 35%
Complete the following tasks in the Part 1 worksheet.
Calculate d1 and d2.
Calculate N(d1) and N(d2).
Calculate -d1 and -d2.
Calculate N(-d1) and N(-d2).
Price the options using the Black-Scholes formula.
Part 2
In Part 2, you will create a one period forecast for a firm’s income statement and balance sheet in the Part 2 worksheet.
Your assumptions are:
Sales will grow by 10% in 2019.
The dividend payout ratio will be 40%.
The tax rate for next year will be 34%.
The interest rate on notes payable will be 4%.
The interest rate on long term debt will be 6%.
The interest rate on cash balances will be 1%.
The growth rate in Net PPE will be 15%.
The following accounts grow with sales:
Cost of Goods
Selling and Administrative
Cash
Accounts Receivable
Inventory
Accounts Payable
Notes Payable
Depreciation is a percentage of Net PPE.
Par value of common stock remains the same.
Complete these steps:
Forecast sales for the year 2019 using the growth rate given.
Find the % of sales for all accounts that grow with sales. Forecast the account values for 2019 using the % of sales (refer to the assumptions above).
Enter formulas for any account that won’t be forecasted but directly calculated. This includes:
Gross Profit (or Gross Margin)
Operating Profit (Earnings Before Interest and Taxes)
Earnings Before Taxes (EBT = Operating Profit + Interest Income – Interest Expense)
Taxes
Net Income
Total Current Assets (add Cash, Accounts Receivable, and Inventory)
Total Assets
Total Current Liabilities (Accounts Payable plus Notes Payable)
Total Shareholder Equity (par value of common stock plus retained earnings)
Forecast Net PPE for 2019.
Forecast depreciation as a percentage of Net PPE in 2019 (the model will calculate this).
Interest income and interest expense will automatically calculate.
Calculate dividends paid in using the dividend payout rate.
On the balance sheet, find accumulated depreciation. It is accumulated depreciation in 2018 plus the new depreciation in 2019 (see income statement for depreciation for 2019).
Back out gross PPE by adding net PPE and accumulated depreciation. This should complete the asset side of the balance sheet.
Set total liabilities and shareholder equity (cell D55) to the value of total assets (D40) for now. You will back out long term debt.
Find the 2019 retained earnings value by adding last year’s Retained Earnings to this year’s Addition to Retained Earnings.
Find total liabilities.
Find long term debt by subtracting total current liabilities from total liabilities.
Note: Be sure to remove any circular references.
Please check the Course Calendar for specific due dates.
The name of the file should be your first initial and last name, followed by an underscore and the name of the assignment, and an underscore and the date. An example is shown below:
Jstudent_exampleproblem_101504