Exam 23: Options and Corporate Finance: Extensions and Applications

Note: Correct answers to later questions are dependent on correct answers to earlier questions. -Ima Greedy,the CFO of Financial Saving Techniques has been granted options on 200,000 shares. The stock is currently trading at $22 a share and the options are at the money. The variance of the stock has been about .07 on an annual basis over the last several years. The options mature in 3 years and the risk free rate is 4%. What is d₂?

Note: Correct answers to later questions are dependent on correct answers to earlier questions. -Ima Greedy,the CFO of Financial Saving Techniques has been granted options on 200,000 shares. The stock is currently trading at $23 a share and the options are at the money. The variance of the stock has been about .08 on an annual basis over the last several years. The options mature in 3 years and the risk free rate is 4%. What is d₁?

Note: Correct answers to later questions are dependent on correct answers to earlier questions. -Ima Greedy,the CFO of Financial Saving Techniques has been granted options on 200,000 shares. The stock is currently trading at $22 a share and the options are at the money. The variance of the stock has been about .07 on an annual basis over the last several years. The options mature in 3 years and the risk free rate is 4%. What is e^-rt?

Executives cannot exercise their options for a fixed period of time. This is the:

The NPV approach must be:

The volatility of interest rates can affect the value of the project by:

The Nu-Tech Company has a new project available to it at a cost of $6,000,000. If the project is accepted,the company will be able to sell 13,000 personal organizers at $172 in net cash flow for each of the next five years. Nu-Tech's discount rate is 15%. What is the NPV of the investment? The executives of Nu-Tech are concerned about the potential of future competition and a subsequent drop in sales and price. If after two years you can dispose of the asset for $1,000,000 at what price would it make sense to abandon the project? A._15,2 + $1,000,000 * (1/1.15)² + X (A._15,3)(1/1.15)² X = $800,627.60; if they sell 13,000 units they should abandon the project if the price drops below $61.59 in years three and out. A._15,5= $-6,000,000 + $7,495,418.80 = $1,495,418.80 Abandon: 0 = $-6,000,000 + $2,236,000 *

The call option on a dividend paying stock compared to a non-dividend paying stock is:

What are the u,the up state multiplier,and d,the down state multiplier,if there are monthly intervals and the standard deviation is .38?

Note: Correct answers to later questions are dependent on correct answers to earlier questions. -Ima Greedy,the CFO of Financial Saving Techniques has been granted options on 200,000 shares. The stock is currently trading at $22 a share and the options are at the money. The variance of the stock has been about .07 on an annual basis over the last several years. The options mature in 3 years and the risk free rate is 4%. Calculate N(d₁).

Walter Maxim,the CEO of Digital Storage Devices has been granted options on 300,000 shares. The stock is currently trading at $27 a share and the options are at the money. The volatility of the stock has been about .15 on an annual basis over the last several years. The options mature in 5 years,become exercisable in 3 years,and the risk free rate is 4%. What is the value of Mr. Maxim's options?

Which of the following statements is true?

Note: Correct answers to later questions are dependent on correct answers to earlier questions. -Ima Greedy,the CFO of Financial Saving Techniques has been granted options on 200,000 shares. The stock is currently trading at $23 a share and the options are at the money. The variance of the stock has been about .08 on an annual basis over the last several years. The options mature in 3 years and the risk free rate is 4%. Calculate N(d₁).

Note: Correct answers to later questions are dependent on correct answers to earlier questions. -Ima Greedy,the CFO of Financial Saving Techniques has been granted options on 200,000 shares. The stock is currently trading at $22 a share and the options are at the money. The variance of the stock has been about .07 on an annual basis over the last several years. The options mature in 3 years and the risk free rate is 4%. Calculate N(d₂).

On the notion of embedded options,which of the following is/are true?

Rejecting an investment today forever may not be a good choice because:

Walter Maxim,the CEO of Digital Storage Devices has been granted options on 300,000 shares. The stock is currently trading at $27 a share and the options are at the money. The volatility of the stock has been about .15 on an annual basis over the last several years. The options mature in 5 years,become exercisable in 3 years,and the risk free rate is 4%. If Mr. Maxim earned $500,000 in regular annual salary why might he prefer to have $1,500,000 in straight salary versus salary and options?

Note: Correct answers to later questions are dependent on correct answers to earlier questions. -Ima Greedy,the CFO of Financial Saving Techniques has been granted options on 200,000 shares. The stock is currently trading at $23 a share and the options are at the money. The variance of the stock has been about .08 on an annual basis over the last several years. The options mature in 3 years and the risk free rate is 4%. What is the value of a call option?

Why is straight NPV analysis flawed as compared to models that include option pricing in the NPV analysis?

A firm in the extraction industry whose major assets are cash,equipment and a closed facility may appear to have extraordinary value. This value can be primarily attributed to: