Using the constant growth model, determine the value of operations for Heath Inc.

Heath Inc. balance sheet shows that it has $10 million short-term investments, $15 million in notes payable, $60 million in long-term bonds, and $15 million in preferred stock. Heath has 60 million of shares outstanding. Calculate the following:

1. total intrinsic value for Heath Inc.

2. intrinsic value of equity for Heath Inc.

3. intrinsic stock price per share for Heath Inc.

4. Distinguish between call option and put option.

The current price of a stock is $50. In 1 year, the price will be either $65 or $35. The annual risk- free rate is 5%. Find the price of a call option on the stock that has an exercise price of $55 and that expires in 1 year. (Hint: Use daily compounding.)