A large manufacturing company has offered to purchase Composites, Inc. for $32 per share. Before the merger proposal announcement, Composites was trading at $20/share and, after the announcement, its share price jumped up to $28/share. It is estimated that, if the merger fails to go through, the price of Composites will drop to $15/share. a) Assuming that the risk-free interest rate is 0%, how would you describe a long position in Composites as a combination of positions in a risk-free bond and a binary put option? Please show your workings in detial. b) Assuming that the risk-free interest rate is 0%, how would you describe a long position in Composites as a combination of positions in a risk-free bond and a binary call option? Please show your workings in detial. c) Please explain the event-driven strategies through the selling insurance view.

Zang Industries has hired the investment banking firm of Eric, Schwartz, & Mann (ESM) to help it go public. Zang and ESM agree that Zang's current value of equity is $55 million. Zang currently has 3 million shares outstanding and will issue 2 million new shares. ESM charges a 5% spread. What is the correctly valued offer price? Do not round intermediate calculations. Round your answer to the nearest cent.

I have a problem with questions below. Impact on earnings of an option and an interest rate swap. Millikin Corporation decided to hedge two transactions. The first transaction is a forecasted transaction to buy 500 tons of inventory in 60 days. The company was concerned that selling prices might increase, and it acquired a 60-day option to buy inventory at a price of $1,200 per ton. Upon acquiring the option, the company paid a premium of $10 per ton when the spot price was $1,201. At the end of 30 days, the option had a value of $19 per ton and a current spot price of $1,214 per ton. Upon expiration of the option, the spot price was $1,216 per ton. In another transaction, the company borrowed $3,000,000 at a fixed rate of 8%; after three months, the company became concerned that variable rates would be lower than 8%. In response, the company entered into an interest rate swap whereby it paid variable rates to a counterparty in exchange for a fixed rate of 8%. The reset rate for the…

Systems has 6.45 billion shares outstanding and a share price of $17.25. Quisco is considering developing a new networking product in-house at a cost of $497 million. Alternatively, Quisco can acquire a firm that already has the technology for $899 million worth (at the current price) of Quisco stock. Suppose that absent the expense of the new technology, Quisco will have EPS of $0.828. a. Suppose Quisco develops the product in-house. What impact would the development cost have onQuisco's EPS? Assume all costs are incurred this year and are treated as an R&D expense, Quisco's tax rate is 40 %, and the number of shares outstanding is unchanged. b. Suppose Quisco does not develop the product in-house but instead acquires the technology. What effect would the acquisition have on Quisco's EPS this year? (Note that acquisition expenses do not appear directly on the income statement. Assume the firm was acquired at the start of the year and has no revenues or expenses of its own, so that the…