Mylab and Masterin x Course Home MeBooks - My Boolex M MHER /epub/sn_4ab95#epubcfi(%2F%2F196%5Bdata uuid-2dd9f73059484f9aa1291aa9e46d63a7%5D1962F4% USM Gmail MINI-CASE The Jones Family Incorporated The Somme It is early evening in the summer of 2018. in an ordinary fumily room in Manhattan Modern furniture with old copies of The Tall Sheet Journal and the Financial Times atfered around. Autographed photos of Jerome Powell and George Soros are prominently displayed. A picture window was a distant view of lights on the Hudson River. John Jones its at computer terminal, lumly sipping a glass of chardonnay and putting on a carry trade in Japanese en over the Internet. His wife Marsh entert Marsha Hi, honey, Glad to be home. Lousy day on the trading floor, though. Dulleville. No volume. But I did manage to hede next year's production from our coppier mine. I couldn't get a good quote on the right package of forest olaanged a commodity swap John deep Marsh John, what's wrong? Have you been selling yen again? That's been a long trade for weeks Job Well, yes I should have gone to Goldman Sachs foreign exchange brunch. But I've got to get out of the he tomehow. I'm cooped up here all day calculating corianoes and efficient de return trade-off while you're out trading commodity future. You per all the glamour and element Marsha Doo'y worry, danr, it will be over soon. We only recalculate our most efficient common stock portfolio enca quarter. Then you can go back to leveraged less John You trade and I do all the worrying. Now there's a rumor that our leasing company is going to get a boutile takeover bid. I know the debt ratio was too low, and you forgot to put on the polcon pill And now you've made a NPV investment Man What investment Jaht That wildest oil well. Another well in that old Sourdough field. It's poing to cost $5 milion Is there any all down there Marsh That Sourdough theld bus been good to us, John, Where do you think we got the upload for your yen trade? I bet we'll find all. Our peologists say there only a 30% chance of a dry holu. Jokwi Even if we hit oll. I bet we'll only st barrels of crude oil per day Man. That'c75 barreldalo, day out. There are 365 days in a year, eat. Johan Marasemape Johnny hurt to the John De Mommaticament method o x 0 Mylab and Masterix Course Home X M Books - My Books x M MHET epub/sh_4ab95#epubcfi%2F%2F196%5Bdata-uuid-2dd9f73059484f9aa1291aa9e46d63a7%5D%2F JS M Gmail TANAH Bad Homes What made the junior varity derivative team that means I can on the field trip to the Chicago Board Options Exchange (Pause What's wrong Johat Your mother has made another negative NPV investment. A wildeat oil well, way up on the North Slope of Alaska Johnny That OK, Dad. Mom told me about it. I was soling to do an NPV enloulation yesterday, but I had to finish caloulating the junk bond default probabilities for my corporate Finance homework (Grabs a financial cafelenor from backpack) Let's see 75 barrels a day times 365 days per year times $100 per barrel when delivered in Los Angeles that's $2.7 million per year John That's $2.7 million next year, amming that we find any oil at all. The production will start declining by swy year. And we still have to pay 520 per barrel in pipeline and tanker charges to ship the oil from the North Slope to Los Angeles. We've got some serious operating leverage here March On the other hand, our energy consultants project ingenting oil price. If they increase with inflation, prica per barrel should increase by roughly 2.5% per year. The well ought to be able to keep pumping for at least 15 yeats. Johnay I'll neunte NPV after I finish with the default probabilities. The interest rate is ok. It OK if I work with the beta or and our usual figure of 7% for the market risk premium Mar so Johnny Rut I am concerned about the fixed shipping costs Jorhat Takes a deep breath and stands way Anyway, how about a nice family dinner? I've reserved our usual table at the Four Seasons Evroue uit Announcer is the wildest wall really negative NPV Will John and Marsha have to fight a hostile takeover! Wil Johnny's derivatives team use Black-Scholes or the binomial method? Find out in the next episode of The Jones Family Incorporated You may not aspire to the Jones family's way of life, but you will learn about all their nativities from future Prer contracts to binomial option pricing, later in this book. Meanwhile, you may wish to repliente Johnny's NPV QUESTIONS L Calculate the NPV of the wildeat oil well taking account of the probability of a dry hole the shipping costs, the decline in production, and the forecasted increase in all prices. How long does production have to continue for the well to be a positive NPV lavestet lengre taxes and other possibile complications 2. Now consider operating leverape. How should the shipping costs be valued, mint that output is known and the Cotts are fixed? How would your onewer change if the shipping costs were proportional to output Asume that unexpected ftuations in output are nero bets and diversifiable. Hit The Jones's oil company has an excellent credit rating. In long term borrowing rate it only 7.) Mylab and Masterin x Course Home MeBooks - My Boolex M MHER /epub/sn_4ab95#epubcfi(%2F%2F196%5Bdata uuid-2dd9f73059484f9aa1291aa9e46d63a7%5D1962F4% USM Gmail MINI-CASE The Jones Family Incorporated The Somme It is early evening in the summer of 2018. in an ordinary fumily room in Manhattan Modern furniture with old copies of The Tall Sheet Journal and the Financial Times atfered around. Autographed photos of Jerome Powell and George Soros are prominently displayed. A picture window was a distant view of lights on the Hudson River. John Jones its at computer terminal, lumly sipping a glass of chardonnay and putting on a carry trade in Japanese en over the Internet. His wife Marsh entert Marsha Hi, honey, Glad to be home. Lousy day on the trading floor, though. Dulleville. No volume. But I did manage to hede next year's production from our coppier mine. I couldn't get a good quote on the right package of forest olaanged a commodity swap John deep Marsh John, what's wrong? Have you been selling yen again? That's been a long trade for weeks Job Well, yes I should have gone to Goldman Sachs foreign exchange brunch. But I've got to get out of the he tomehow. I'm cooped up here all day calculating corianoes and efficient de return trade-off while you're out trading commodity future. You per all the glamour and element Marsha Doo'y worry, danr, it will be over soon. We only recalculate our most efficient common stock portfolio enca quarter. Then you can go back to leveraged less John You trade and I do all the worrying. Now there's a rumor that our leasing company is going to get a boutile takeover bid. I know the debt ratio was too low, and you forgot to put on the polcon pill And now you've made a NPV investment Man What investment Jaht That wildest oil well. Another well in that old Sourdough field. It's poing to cost $5 milion Is there any all down there Marsh That Sourdough theld bus been good to us, John, Where do you think we got the upload for your yen trade? I bet we'll find all. Our peologists say there only a 30% chance of a dry holu. Jokwi Even if we hit oll. I bet we'll only st barrels of crude oil per day Man. That'c75 barreldalo, day out. There are 365 days in a year, eat. Johan Marasemape Johnny hurt to the John De Mommaticament method o x 0 Mylab and Masterix Course Home X M Books - My Books x M MHET epub/sh_4ab95#epubcfi%2F%2F196%5Bdata-uuid-2dd9f73059484f9aa1291aa9e46d63a7%5D%2F JS M Gmail TANAH Bad Homes What made the junior varity derivative team that means I can on the field trip to the Chicago Board Options Exchange (Pause What's wrong Johat Your mother has made another negative NPV investment. A wildeat oil well, way up on the North Slope of Alaska Johnny That OK, Dad. Mom told me about it. I was soling to do an NPV enloulation yesterday, but I had to finish caloulating the junk bond default probabilities for my corporate Finance homework (Grabs a financial cafelenor from backpack) Let's see 75 barrels a day times 365 days per year times $100 per barrel when delivered in Los Angeles that's $2.7 million per year John That's $2.7 million next year, amming that we find any oil at all. The production will start declining by swy year. And we still have to pay 520 per barrel in pipeline and tanker charges to ship the oil from the North Slope to Los Angeles. We've got some serious operating leverage here March On the other hand, our energy consultants project ingenting oil price. If they increase with inflation, prica per barrel should increase by roughly 2.5% per year. The well ought to be able to keep pumping for at least 15 yeats. Johnay I'll neunte NPV after I finish with the default probabilities. The interest rate is ok. It OK if I work with the beta or and our usual figure of 7% for the market risk premium Mar so Johnny Rut I am concerned about the fixed shipping costs Jorhat Takes a deep breath and stands way Anyway, how about a nice family dinner? I've reserved our usual table at the Four Seasons Evroue uit Announcer is the wildest wall really negative NPV Will John and Marsha have to fight a hostile takeover! Wil Johnny's derivatives team use Black-Scholes or the binomial method? Find out in the next episode of The Jones Family Incorporated You may not aspire to the Jones family's way of life, but you will learn about all their nativities from future Prer contracts to binomial option pricing, later in this book. Meanwhile, you may wish to repliente Johnny's NPV QUESTIONS L Calculate the NPV of the wildeat oil well taking account of the probability of a dry hole the shipping costs, the decline in production, and the forecasted increase in all prices. How long does production have to continue for the well to be a positive NPV lavestet lengre taxes and other possibile complications 2. Now consider operating leverape. How should the shipping costs be valued, mint that output is known and the Cotts are fixed? How would your onewer change if the shipping costs were proportional to output Asume that unexpected ftuations in output are nero bets and diversifiable. Hit The Jones's oil company has an excellent credit rating. In long term borrowing rate it only 7.)