Chapter 14 Options and Corporate Finance

To equal $6,697.44, the stock price must increase to at least $37.23[2] at the end of the 5th year. The stock price has to be higher than $35 in order to be exercised and make a gain, otherwise she will leave it expire worthlessly. However, from Exhibit 2, Telstar stock price has

a) In the first set of calculations, the staff used a discount rate of 20%, a five-year time horizon, and ignored taxes and terminal value. What is the relative attractiveness of these three alternatives?

the stock is a put option on the firm's assets, and risky projects increase the exercise price of the option.

c) The present value of $500 to be received in one year when the opportunity cost rate is 8 percent (discounting):

4. If Ms. Jameson decided that the option was a better deal, but was concerned with being too committed and reliant on the fortunes of Telstar, she could modify her compensation package to better suit her individual needs. Ms. Jameson would be taking considerable risk by keeping all of her bonus in Telstar for stock options with such a lengthy expiration date and also due to the historical data of Telstar showing that only stock prices reached $35 (the exercise price) only once.

a. What makes Arundel think it can make money by buying a package of sequel rights? Is the profit opportunity, if it exists, likely to be sustainable?

b) What will be the total equity value and equity price per share after the issuance is completed?

Market value per share = Book value per share = $12,000 / 750 shares = $16 per share

Suppose you have just won $100 in a lottery. You have a choice between two alternatives: (1) use it to buy a new shirt that costs $100, but are willing to pay $107; (2) put the money in a bank for one year and earn 10% interest. What is the opportunity cost of spending the money now to buy the shirt?

11. Returning the risk free rate to 4%, what happens to the value of the option if the Whirlpool’s cost of capital goes from 9% to 15%?

The value of the option is so sensitivity about the ranges of returns. When the range decreases by 10%, the value decreases by 60.36% .When the range increases

However, it is important to remember that the APV valuation and the option valuation calculations in Exhibit 1 and 3 aren’t straight forward comparable, since APV assumes financing the acquisition with new $300 million debt and real option valuation is calculated assuming total equity financing. If the tax rate remains constant, the real option valuation could be performed by taking the present value of the tax shields into account. In this case the values obtained by real option valuation would be even higher than the ones presented in the table.

What is the intrinsic value of a Facebook share? How does this valuation compare to the price talk from underwriters?

On September 30, 1997, Microsoft had 258 million options outstanding, granted to employees over time. These options had an average exercise price of $ 42 (the current stock price i $ 140). Estimate the value per share.

During the year 2009-‘10, the Company allotted 52, 20,861 equity shares upon exercise of stock options by the eligible employees under the Employee Stock Option Schemes.