Case uitwerking
Homework set 6 solutions
- Instelling
- Universiteit Van Amsterdam (UvA)
This document contains the computations and solutions to the sixth and final homework set awarded with a pass.
[Meer zien]Voorbeeld 3 van de 6 pagina's
Voorbeeld 3 van de 6 pagina's
In winkelwagengesponsord bericht van onze partner
Gekoppeld boek
Titel boek:
Auteur(s):
- Uitgave:
- ISBN:
- Druk:
Voorbeeld van de inhoud
Finance 2 (2023) – Problem Set 6 (Week 7)University of Amsterdam
Answers to IN CLASS exercises do not need to be handed in
The parts of exercises marked [IN CLASS] (e.g. 2d-2f) will be completed during the tutorial
and answers to these parts do not need to be handed in via Canvas. Answers to the other
questions need to be completed before the deadline (see Canvas) and students need them
to participate in the tutorial.
Grading: only first problem set and bonus
We will only grade the first homework set in Canvas and then at the end of the course
determine if you have received the bonus or not. You will therefore not see a grade for
each homework set you have handed in. Feedback is possible during the tutorials.
Question 1 – Chapter 22 - Real options
You want to start an off-shore business in Venezuela, a country where the level of political stability
will influence the prospects of the business. You have the opportunity to invest straight away in new
facilities which will cost you $6.0 million upfront. This investment will generate a FCF at the end of
each year forever that can be either $800,000 (when political stability is high) or $250,000 (when
political stability is low), each with 50% probability.
If you do not invest immediately you have the real option to postpone the investment for one year
giving you precise information about the political stability in the country. After postponing the
investment you know for sure if stability is high or low with corresponding cash flows as mentioned
above. The appropriate discount rate for this project is 12% per year.
a) Draw the decision tree (with choices and cash flows) for the offshore business including the
decision to postpone the investment by one year.
b) What is the NPV of the project today if the company decides not to wait?
c) What is the NPV of the project today if the company decides to wait 1 year?
d) Would you advise the company to wait or not?
e) What is the value of the real option imbedded in this situation?
Question 2 – Chapter 29 - Managerial Compensation
a) Define the concept of corporate governance. In what situations is corporate governance
needed?
b) If you could design a compensation package for the CEO, how would you construct this
package and why?
c) Does linking management compensation to stock performance incentivize managers to act
in interest of the company? Explain why or why not.
1
,d) What are downsides of having the pay of managers linked to the stock price? [IN CLASS]
e) Does the threat of a hostile takeover increase or reduce the likelihood that managers
behave in the interests of shareholders? Explain your answer. [IN CLASS]
f) Find an example in the news of a situation in which the corporate governance mechanism of
a company clearly failed. What could have been done to prevent this situation? [IN CLASS]
2
, Problem set 6
You want to start an off-shore business in Venezuela, a country where the level of
political stability will influence the prospects of the business. You have the opportunity
to invest straight away in new facilities which will cost you $6.0 million upfront. This
investment will generate a FCF at the end of each year forever that can be either
$800,000 (when political stability is high) or $250,000 (when political stability is low),
each with 50% probability.
If you do not invest immediately you have the real option to postpone the investment for
one year giving you precise information about the political stability in the country. A er
postponing the investment you know for sure if stability is high or low with
corresponding cash flows as mentioned above. The appropriate discount rate for this
project is 12% per year.
Question 1
a.
Voordelen van het kopen van samenvattingen bij Stuvia op een rij:
Verzekerd van kwaliteit door reviews
Stuvia-klanten hebben meer dan 700.000 samenvattingen beoordeeld. Zo weet je zeker dat je de beste documenten koopt!
Snel en makkelijk kopen
Je betaalt supersnel en eenmalig met iDeal, creditcard of Stuvia-tegoed voor de samenvatting. Zonder lidmaatschap.
Focus op de essentie
Samenvattingen worden geschreven voor en door anderen. Daarom zijn de samenvattingen altijd betrouwbaar en actueel. Zo kom je snel tot de kern!
Veelgestelde vragen
Wat krijg ik als ik dit document koop?
Je krijgt een PDF, die direct beschikbaar is na je aankoop. Het gekochte document is altijd, overal en oneindig toegankelijk via je profiel.
Tevredenheidsgarantie: hoe werkt dat?
Onze tevredenheidsgarantie zorgt ervoor dat je altijd een studiedocument vindt dat goed bij je past. Je vult een formulier in en onze klantenservice regelt de rest.
Van wie koop ik deze samenvatting?
Stuvia is een marktplaats, je koop dit document dus niet van ons, maar van verkoper EBEdocuments. Stuvia faciliteert de betaling aan de verkoper.
Zit ik meteen vast aan een abonnement?
Nee, je koopt alleen deze samenvatting voor €3,99. Je zit daarna nergens aan vast.
Is Stuvia te vertrouwen?
4,6 sterren op Google & Trustpilot (+1000 reviews)
Afgelopen 30 dagen zijn er 81849 samenvattingen verkocht
Opgericht in 2010, al 14 jaar dé plek om samenvattingen te kopen