a. Suppose Starbucks consumes 90 million pounds of coffee beans per year. As the price of coffeerises, Starbucks expects to pass along 35 %

of the cost to its customers through higher prices per cup of coffee. To hedge its profits from fluctuations in coffeeprices, Starbucks should lock in the price of how many million pounds of coffee beans using supplycontracts?

QUESTION: Starbucks should lock in the price of ???? million pounds of coffee beans.

b. Your company has earnings per share of $ 3. It has 1million sharesoutstanding, each of which has a price of $ 38. You are thinking of buyingTargetCo, which has earnings per share of $ 2, 1 million sharesoutstanding, and a price per share of $ 30. You will pay for TargetCo by issuing new shares. There are no expected synergies from the transaction. Suppose you offer an exchange ratio suchthat, at currentpre-announcement share prices for bothfirms, the offer represents a 21% premium to buy TargetCo. Assume that on the announcement the target price will go up and your price will go down to reflect the fact that you are willing to pay a premium for TargetCo. Assume that the takeover will occur with certainty and all market participants know this on the announcement of the takeover.

a. What is the price per share of the combined corporation immediately after the merger iscompleted?

b. What is the price of your company immediately after theannouncement?

c. What is the price of TargetCo immediately after theannouncement?

d. What is the actual premium your company willpay?

c. MarylandLight, a U.S. lightmanufacturer, is considering an investment in Japan. The dollar cost of equity for Maryland is

11.67%. You are in the corporate treasurydepartment, and you need to know the comparable cost of equity in Japanese yen for a project with free cash flows that are uncorrelated with spot exchange rates. Therisk-free interest rates on dollars and yen are r Subscript $ Baseline equalsr$=4.42% and r Subscript yen Baseline equals

r=1.08%, respectively. Maryland is willing to assume that capital markets are internationally integrated. What is the yen cost ofequity?

d.Gladstone Corporation is about to launch a new product. Depending on the success of the newproduct, Gladstone may have one of four values nextyear:

$149 million, $131 million, $97 million, and $83 million. These outcomes are all equallylikely, and this risk is diversifiable. Gladstone will not make any payouts to investors during the year. Suppose therisk-free interest rate is 4.9% and assume perfect capital markets.

a. What is the initial value ofGladstone's equity withoutleverage?

Now suppose Gladstone haszero-coupon debt with a

$100 million face value due next year.

b. What is the initial value ofGladstone's debt?

c. What is theyield-to-maturity of thedebt? What is its expectedreturn?

d. What is the initial value ofGladstone's equity? What isGladstone's total value withleverage?