Problem:
A call option on Bedrock Boulders stock has a market price of $7. The stock sells for $30 a share, and the option has an exercise price of $25 a share. What is the exercise value of the call option? b. What is the options time value?
Use the following income statements and balance sheets to calculate Garnet Inc.'s free cash flow for 2011.
Garnet Inc.
Income Statement 2011 2010
Net sales $530.00 $500.00
Costs (except depreciation) 400 380
Depreciation 30 25
Total operating costs $430.00 $405.00
Earnings before interest and taxes (EBIT) 100 95
Less interest 23 21
Earnings before taxes $77.00 $74.00
Taxes (40%) 30.8 29.6
Net income 46.2 44.4
Balance Sheet 2011 2010
Assets
Cash $28.00 $27.00
Marketable securities 69 66
Accounts receivable 84 80
Inventories 112 106
Total current assets $293.00 $279.00
Net plant and equipment 281 265
Total assets $574.00 $544.00
Liabilities and Equity
Accounts payable $56.00 $52.00
Notes payable 138 130
Accruals 28 28
Total current liabilities $222.00 $210.00
Long-term bonds 173 164
Common stock 100 100
Retained earnings 79 70
Common equity $179.00 $170.00
Total liabilities and equity $574.00 $544.00