The Morris Corporation has $600,000 of debt outstanding, and it pays an interest rate of 8% annually. Morris’ annual sales are $3 million, its average tax rate is 40%, and its net profit margin on sales is 3%. If the company does not maintain a TIE ratio of at least 5 to 1, then its bank will refuse to renew the loan and bankruptcy will result. What is Morris’ TIE ratio?
Which of the following events are likely to increase the market value of a call option on a common stock? Explain.
a. An increase in the stock’s price
b. An increase in the volatility of the stock price
c. An increase in the risk-free rate
d. A decrease in the time until the option expires
