tailieunhanh - Ebook Principles of corporate finance (10th edition): Part 2

(BQ) Part 2 book "Principles of corporate finance" has contents: Understanding options, financial analysis, financial planning, working capital management, corporate restructuring, managing international risks, the many different kinds of debt,.and other contents. | confirming pages 20 To download more slides, ebooks, solution manual, and test bank, visit CHAPTER ● ● ● ● ● PART 6 OPTIONS Understanding Options ◗ Pop quiz: What do the following events have in common? • The coffee roaster, Green Mountain, buys options that put a ceiling on the price that it will pay for its future purchases of beans. • Flatiron offers its president a bonus if the company’s stock price exceeds $120. • Blitzen Computer dips a toe in the water and enters a new market. • Malted Herring postpones investment in a positiveNPV plant. • Hewlett-Packard exports partially assembled printers even though it would be cheaper to ship the finished product. • Dominion installs a dual-fired unit at its Possum Point power station that can use either fuel oil or natural gas. • In 2004 Air France acquires the Dutch airline, KLM, in exchange for a package of Air France shares and warrants. The warrants entitle KLM’s shareholders to buy additional Air France shares for €20 each within then next years. • In February 2008 Chiquita Brands issues $200 million of convertible bonds maturing in 2016. Each bond can be exchanged for shares at any time before maturity. Answers: (1) Each of these events involves an option, and (2) they illustrate why the financial manager of an industrial company needs to understand options. Companies regularly use commodity, currency, and interest-rate options to reduce risk. For example, a meatpacking company that wishes to put a ceiling on the cost of beef might take out an option to buy live cattle at a fixed price. A company that wishes to limit its future borrowing costs might take out an option to sell longterm bonds at a fixed price. And so on. In Chapter 26 we explain how firms employ options to limit their risk. Many capital investments include an embedded option to expand in the future. For instance, the company may invest in a patent that allows it to exploit a new .