1. The price of Ervin Corp. stock will either be $64 or $90 at the end of the year. Call options are available with one year until expiration. Continuously compounded T-bills currently yield 3.7 %. Suppose the current price of Ervin stock is $78.
What if the strike price is $55 per share? (Round answer to 2 decimal places. Do not round intermediate calculations).
2. The 2008 balance sheet of Maria's Tennis Shop, Inc., showed $2.95 million in long-term debt, $710,000 in the common stock account, and $6.5 million in the additional paid-in surplus account. The 2009 balance sheet showed $4.05 million, $905,000, and $8.25 million in the same three accounts, respectively. The 2009 income statement showed an interest expense of $360,000. The company paid out $590,000 in cash dividends during 2009. If the firm's net capital spending for 2009 was $760,000, and the firm reduced its net working capital investment by $135,000, the firm's 2009 operating cash flow, or OCF?
$-1,470,000
$-2,095,000
$-3,900,000
$2,365,000
$-2,650,000