4. You are an equity analyst and have computed the following figures for two manufacturers of paper products. The first, PaperPro, has NOPAT of $325 million, invested capital without goodwill of $2,500 million, and goodwill of $950 million. The second, ExpertPaper, has NOPAT of $750 million, invested capital without goodwill of $6,000 million, and no goodwill. If the cost of capital for both firms is 10 percent, are the firms creating value in this year? Which company has the best financial performance? 5. PaperPro had previously acquired PaperExpo, which independently generates $800 million per year in revenues, with no material growth. The consolidated revenues for PaperPro (post-acquisition) are $1.5 billion in year 1, $1.8 billion in year 2 (the year of the acquisition), and $2.5 billion in year 3. If PaperPro closed the acquisition of PaperExpo on October 1 of year 2, what is the "apples-to-apples" organic growth for PaperPro in year 2 and year 3? How does this differ from reported revenue growth? Assume that PaperExpo's revenues are consolidated into PaperPro's only after the acquisition close and that the fiscal year closes for both companies on December 31 of each year. 6. Which interest coverage ratio, EBITDA to interest or EBITA to interest, will lead to a higher number? When is the EBITDA interest coverage ratio more appropriate than the EBITA ratio? When is the EBITA interest coverage ratio more appropriate than the EBITDA ratio?

Hybrid Hydrogen, a brand new department of a major American auto manufac- turer, is thinking about development of hybrid vehicles that can run on hydro- gen fuel. Since there may be marketplace uncertainty concerning future income, the enterprise desires to use the alternatives method to cost the task for a pass/ no-pass investment selection. The undertaking is divided into two stages: the design/engineering segment and the producing phase. The first section has to be completed before the second one segment can begin. The design phase can start each time next year, while the producing phase can start whenever inside the next three years. Design is predicted to cost $2 hundred million and production an extra $600 million. DCF analysis the use of an appropriate threat-adjusted bargain charge values the existing value of the destiny coins flows from this operation at $600 million. The annual vola- tility of the logarithmic returns of the future coins flows for the auto is predicted to be 30%, and the non-stop annual risk-loose interest price over the following five years is 6%. What is the price of the choice to stage? 8-2. If there's no flexibility in the investments in Problem 8-1, what is the DCF-primarily based NPV for this assignment assuming a ten% interest fee for dis- counting the investment expenses? Eight-3. Reconsider the Hybrid Hydrogen trouble as a easy alternative wherein the corporation has the ability to make a single mixed funding. The alternative existence in this scenario is twelve months and the funding value $800 million (the sum of the funding fees for both stages). What is the cost of the option to wait to invest in this state of affairs? How does it evaluate with the ROV of the choice to level? Explain your solution. 8-4. AntiquesNow is a start-up business enterprise this is thinking about constructing a flag- deliver brick-and-mortar save in addition to an online e-commercial enterprise to sell an- tiques. It plans to use the flagship store as a warehouse from which to fill orders from the e-commercial enterprise. DCF analysis using the ideal chance- adjusted bargain rate locations the NPV of the predicted destiny coins flows at $50 million. The annual volatility issue for this payoff is calculated to be 25%. Based at the competition, AntiquesNow estimates that it has 3 years to make a moveo-move choice in this task. The non-stop

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(Combination option) A derivative security of European style with expiration in 1 year has this payoff: max[0, max(3K - S,S-K)] where K = 10 is the strike price and S is the price of the underlying stock at expiration. The stock currently trades at $25 and the following prices for European options on the stock are known (all expiring in 1 year): Type Strike Price Call 10 16.67 Call 20 7.02 Put 10 0.85 Put 30 6.05 (c) What is the price P of the derivative security?