1 Discuss thepricing ofstock
options? Answer the following in your essay:
i. Which authors areinfluential in valuation options
ii. what is the name of the model.
iii. Why is the model useful
iv. what are the factors in the model of option pricing (i.e. for a call option describe the input variable and what
effect an increase in the variable has on the option price.)
v. Discuss theput call parity what it is
and why parity exists?
2We calculate the value of the firm by several ways using
cash flows and dividends. What are two widely used methods to value equity of the firm? Discuss them and compare them how are they similar or
theories of the firm. Are dividends irrelevant and if so then why do firms pay or not pay dividends? Are there
other more tax-efficient ways a firm can distribute cash to shareholders? If so what are they and what is the tax advantage?
Dividends are irrelevant. Merton Miller and Franco Modigliani are the original proponents of the dividends irrelevant
4 Discuss capital structure theories of the firm; in your answer state whether capital structure affects firm valuation. If
structure affects valuation then are there trades-offs available to managers in selecting a capital structure? Why or why not do bankruptcy costs play a role
in capital structure?
5How is capital
structure linked to firm valuation capital budgeting and evaluation of merger/acquisition targets? How do we define and estimate the optimal capital
structure (hint: the relationship of optimal structure and WACC).