236 Corporate Finance
Credit rating Expected return
Country (Sep 1995) percent
Australia 71.2 18.1
Belgium 79.2 15.9
Brazil 34.9 33.0
China 57.0 22.8
Germany 90.9 13.0
Hong Kong 67.0 19.4
India 46.1 27.2
Indonesia 52.4 24.5
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QUESTIONS
- The ACME company is in the oil business. It has a transferable short-term option to drill on a certain plot of land. The
company has three options.
(a) Drill immediately.
(b) Pay to have a seismic test run in the next few days, and then, depending on the result of the test, decide whether or not
to drill.
(c) Let the option expire.