Hello, This is the problem set ofCorporate Finance. Please help me solve the problem and show step by step solution. Make sure the solution that you work on is correct because I will earn score from this assignment in class and is important for my grade.

ARE 171b Homework 4 Winter 2016 Due Thursday, March 10th, in class 1. Tercel Products has EBIT of $8 million. The firm is currently all-equity financed, with 2.4 million shares of common stock. The firm's P/E ratio is 25, and its tax rate is T=.4. a. What is the firm's EPS and stock price? What is the total market value of the firm? b. Suppose the firm sells $20 million worth of convertible bonds, to finance an expansion project. The bonds sell for a par value of $1000, pay an interest rate of 5%, and each bond is convertible to 17 shares of common stock. What is the conversion value of these bonds when they are issued? What premium to conversion value are the bonds selling at? c. Now suppose that, due to revenues generated by the new investment project, EBIT rises to $10 million. Given the bond sale as in part b., what is the firm's new EPS? If the P/E ratio remains at 25, what is the new price of the common stock? Are the bonds likely to be converted at this time? Explain why or why not. 2. Smithfield Foods currently has 2 million shares of common stock outstanding, selling at a market price of $60/share. The firm has identified an attractive new project that will require $10 million in additional equity capital. To give its current shareholders the opportunity to maintain their current percentage of ownership, Smithfield will use a rights offering. a. Suppose the subscription price for the new shares is set at $40/share. How many new shares will the firm need to issue to meet its target for raising new capital? How many rights will be required to buy each new share of stock? What is the expected market price per share after the right offering is complete? What is the value of each right? b. Laura owns 1000 shares of Smithfield, prior to the rights offering. What is her proportional ownership of the firm at that time? And what is the total value of her shares before the rights offering? c. If Laura decides to exercise all of her rights, how much additional cash will she need to pay in to the firm? What is the new value of her portfolio, and what is her proportional ownership share of the firm? d. If instead, Laura decides to sell her rights, and just keep her original 1000 shares, what is the new value of her portfolio, and what is her proportional ownership share of the firm? 3. Suppose Intel common stock has a current market price of $30.63 on March 4, 2016. The following listed options are being traded on this stock at that time (many others with different strike prices and expiration dates would also be available, this is just a sample) Expiration date Type Last price Strike price March 18-2016 Call .$43 $31 March 18-2016 Put .82 $31 a. For each option above, is it "in the money" or "out of the money", and by how much? What is its premium to intrinsic or theoretical value at this time? (example, if a call option with a strike price of 60 was selling for $5, and the stock's current price was $62, we would say it is in the money by $2, and its premium is $3) b. Several investors who are following INTC are shown below. Assume each one begins with $3200 in cash. Any cash they don't use to purchase shares or options remains in their bank account. Mark is bullish on INTC. He purchases 100 shares of the common stock. Laura is also bullish on INTC, but purchases 100 calls instead (one option contract) Seth is really bullish on INTC, so he purchases 700 calls (7 option contracts) Martha is bearish on INTC, so buys 100 puts (one option contract) Bram is very bearish on INTC, so buys 300 puts. (3 option contracts) Nina thinks the market will be highly volatile, so buys 100 puts and 100 calls For each of the 6 investors/traders above, how much money will they end up with, under the following three situations: i. Due to good news about the firm, and/or general strength in the stock market, INTC rises sharply to $34.63/share before March 18 ii. Due to bad news about the firm or a weak overall stock market, INTC falls sharply to $26.63 iii. INTC price stays steady at $30.63 In the above question, assume that the options are sold on the last day at their intrinsic value, if it positive, or that the options expire worthless if they have no intrinsic value. Also don't forget to count the extra money they kept in the bank. We are ignoring commissions, and aren't assuming interest is earned at the bank since the $ will only be there for 2 weeks and interest rates are very low at this time