茲維博迪金融學(xué)第二版試題庫17TB

1、Chapter SeventeenReal OptionsThis chapter contains 28 multiple choice questions, 10 short problems, and 5 longer problems.Multiple Choice1. There is a basic similarity between the options involved in investment projects and _ options on stocks.(a) switch(b) call(c) abandon(d) expandAnswer: (b)2. In

2、comparing the similarity between options in investment projects and call options on stocks, the decision maker has the _ to buy something of value at a future date.(a) obligation(b) right but not the obligation(c) desire but not the right(d) financial means Answer: (b)3. In general, the _ the uncert

3、ainty about future outcomes, the _ the need to account explicitly for any options. (a) greater; greater(b) greater; less(c) less; greater(d) none of the aboveAnswer: (a)4. A(n) _ in the uncertainty about a project's future payoffs _ its value.(a) increase, decreases(b) increase, increases(c) dec

4、rease increases(d) increase, does not changeAnswer: (b)5. An option to _ a project corresponds to an American put option.(a) defer(b) abandon(c) rescale(d) reverseAnswer: (b)6. An option to _ allows the project to be expanded or contracted for some fixed price.(a) defer(b) abandon(c) rescale(d) reve

5、rseAnswer: (c)7. An option to _ allows the postponement of the beginning of an investment project.(a) defer(b) abandon(c) rescale(d) reverseAnswer: (a)8. An option to _ corresponds to an American call option.(a) defer(b) abandon(c) rescale(d) reverseAnswer: (a)9. If a companys investment in a new pr

6、oject has a salvage value of zero, this investment is said to be _.(a) uncertain(b) irreversible(c) deferrable(d) mutableAnswer: (b)10. The option to _ an investment decision is valuable even if the expected price in the future is equal to the current price. (a) defer(b) reverse(c) renew(d) obligate

7、Answer: (a)11. Taking management's flexibility explicitly into account _ a projects NPV.(a) decreases(b) increases(c) does not change(d) reversesAnswer: (b)12. _ can be used to determine a set of possible NPVs, with respect to variables within an project, to determine if the optimal strategy is

8、to abandon, defer, or immediately proceed with the investment.(a) A decision tree(b) The APV method(c) Probability mapping(d) Sensitivity analysisAnswer: (d)13. The _ formula can be applied to capital budgeting problems.(a) Dividend valuation(b) Capital structure valuation(c) Black-Scholes (d) all o

9、f the aboveAnswer: (c)14. In a capital budgeting framework, we can use the same valuation models developed to price _.(a) European exchange rate futures(b) American exchange rate futures(c) European preferred stock valuations(d) European call options on a stockAnswer: (d)15. In the context of option

10、 pricing, the value of flexibility _ the volatility of the project.(a) undermines(b) is unaffected by(c) increases with(d) decreases withAnswer: (c)16. Failing to take into account the managerial options to delay the start of a project, or once started to expand or abandon it, will cause an analyst

11、evaluating the project to _.(a) overestimate its NPV(b) underestimate its NPV(c) overestimate its initial costs(d) underestimate its initial costsAnswer: (b)17. A company is considering a new project that would require an initial investment of $5 million and in its second phase one year from now ano

12、ther investment of $105 million to build a plant. From todays perspective the value of the completed plant a year from now is a random variable with a mean of $110 million and a standard deviation of 0.2. The riskless interest rate is 5% per year. If one were to evaluate this investment with the Bla

13、ck-Scholes formula in order to take its flexibility into account, which of the following is true?(a) the value of E to be used in the formula is $110 million(b) the value of S to be used in the formula is $100 million(c) the value of C is found to be $8.02 million(d) none of the aboveAnswer: (b)18.

14、True Blue Inc. is considering acquiring another firm, Mellow Yellow Inc. Let us assume that they are both 100% equity financed firms, that is, neither firm has any debt outstanding. Each firm has 1 million shares of common stock outstanding that can be freely bought and sold in a competitive market.

15、 The current market value of Mellow Yellow Inc. is $50 million and its standard deviation is 0.2. Suppose Mellow Yellows management offers True Blue an option to acquire 100% of Mellow Yellows shares a year from now for $55 million. The riskless interest rate is 5% per year. If the option costs $2.2

16、5 million, the NPV is:(a) $5.27 million(b) $3.02 million(c) $0.77 million(d) $0Answer: (c)19. Consider the example in question 17. Assuming all other data remains the same, what would the NPV be if the price to acquire Mellow Yellows stock were to $58 million instead of $55 million?(a) $5.02 million

17、(b) $0.15 million(c) $2.1 million(d) $4.35 millionAnswer: (b)20. Consider the example in question 17. Assuming all other data remains the same, what would the NPV be if Mellow Yellows standard deviation were 0.3 instead of 0.2? (a) $2.32(b) $0.85 million(c) $2.76 million(d) $5.01 millionAnswer: (c)2

18、1. Consider the example in question 17. What would the NPV be is the price to acquire Mellow Yellow were $62 million instead of $55 million and its standard deviation were 0.4 instead of 0.2? Assume all other data remains the same. (a) $2.61 million(b) $4.86 million(c) $7.11 million(d) The NPV is th

19、e same as for the original data in question 17.Answer: (a)22. An option to abandon a project is an example of a(n) _ option.(a) explicit purchase(b) managerial (c) call(d) irreversibleAnswer: (b)23. If a company is considering the acquisition of another company and has the opportunity to do so a yea

20、r from now the type of option this capital budgeting may entail is called a(n) _ option.(a) explicit purchase(b) technical (c) growth (d) fundamental Answer: (a)24. Recognizing the similarity between call options and managerial options is important because _.(a) it clarifies the role of uncertainty

21、in evaluating projects(b) it structures the analysis of investment projects as a sequence of management decisions over time(c) it gives us a method for estimating the option value of projects by applying the quantitative models developed for valuing call options on stocks(d) all of the aboveAnswer:

22、(d)25. Use the Black-Scholes formula to calculate the value of an option where T = 2 years, s = 0.3, the exercise price = $200 million, the current price is $181.41, and the riskless interest rate is 5% per year. (a) $15.86 million(b) $30.22 million(c) $30.66 million(d) $51.71 millionAnswer: (c)26.

23、Consider Benedick Corp., which has the opportunity to invest in a hydro-electricity plant. An initial outlay of $19 million is required to build the facility to house the equipment. In the second phase, one year from now, equipment costing $210 million must be purchased. Suppose from today's per

24、spective the value of the plant a year from now is a random variable with a mean of $240 million and a standard deviation of 0.35 million. Use the Black-Scholes formula to compute the value of the option.(a) $22.15 million(b) $27.65 million(c) $27.89 million(d) $40.44 millionAnswer: (c)27. What is t

25、he NPV of the project in question 27?(a) $19 million(b) $8.89 million(c) $8.65 million(d) $3.15 millionAnswer: (b)28. Consider the scenario in question 27. If the standard deviation is changed to 0.25, what happens to the value of the option?(a) It is unchanged(b) It increases by approximately $8 mi

26、llion(c) It decreases by approximately $8 million(d) It is reduced by approximately 10%Answer: (c)29. Compute the NPV of the project from question 27 if its standard deviation is now 0.25.(a) $0(b) $1 million(c) $12 million(d) $16.65 millionAnswer: (b)Short Problems1. What are some important “real o

27、ptions” a manger has with regards to investment projects? Why is it important to be aware of them?Answer:Many, if not most, corporate investment opportunities present the ability for managers to delay the start of a project, or once started, to expand it or abandon it. Failure to take into account t

28、hese real options will cause an analyst evaluating the project to underestimate its NPV.2. Discuss deferral, abandon, rescale options.Answer:The option to postpone the beginning of an investment project is a deferral option and can be mapped nicely into an American call option. Here the exercise pri

29、ce of the option is the projects required initial investment and the maturity date of the option corresponds to the final decision point beyond which the decision cannot be postponed. An option to abandon a project corresponds to an American put option. The exercise price for the option would be the

30、 amount that must be paid to terminate the project. This could be a contracted amount or simply the market value of the project if it is liquidated. On both sides of a deferral option and an option to abandon may lie possibilities to exercise an option to rescale the project where the project can be

31、 expanded or contracted for some fixed price.3. What is the fundamental similarity between options in investment projects and call options on stocks?Answer:The fundamental similarity is that the decision maker has the right but not the obligation to buy something of value at a future date. 4. Discus

32、s irreversibility in terms of an investment decision.Answer:Consider the situation of a company contemplating whether to invest in a factory. The investment is completely irreversible, meaning that the custom-built facility can be used to produce no alternative product nor can it be modified to do s

33、o except at a prohibitive cost. Hence after the initial investment the factory immediately has no value in an alternative use. This is for practical purposes equivalent to assuming the salvage value is zero. Once the investment is undertaken the costs are sunk and cannot be recovered.5. Using the Bl

34、ack-Scholes formula, calculate the value of an option where T = 3 years, the standard deviation of the annualized continuously compounded rate of return on stock = 0.3, the exercise price = $400 million, the current price of the stock is $350 million, and the riskless interest rate is 5% per year.An

35、swer:SErTResult$350$4000.0530.3C = $74.05 million6. A new project would required a company to make an initial outlay of $125 million. In 3 years, phase two of the project would require the company to purchase buildings and equipment at a cost of $400 million. From todays perspective the value of pha

36、se two when completed is a random variable with a mean of $425 million and a standard deviation of 0.4. The riskless interest rate is 5% per year. Compute the NPV of the investment. Should the project be undertaken?Answer:SErTResult$345.54$4000.0530.4C = $94.09 millionNPV= C Initial investment= $94.

37、09 $125 million= $30.91 millionA project should only be undertaken if it has a positive NPV, so this project should not be pursued.7. See question 6. What happens to the NPV of the investment project if the volatility = 0.6?Answer:SErTResult$345.54$4000.0530.6C = $137.44 millionNPV= C Initial invest

38、ment= $137.45 $125 million= $12.44 millionThe increase in volatility results in an increases value of the call, making the NPV positive.8. Consider a firm, McIntyre Oil Corporation, which is considering the acquisition of another firm, Argyll Inc. Let us assume that both of these firms are both 100%

39、 equity financed firms, that is, neither firm has any debt outstanding. Each firm has 1 million shares of common stock outstanding that can be freely bought and sold in a competitive market. The current value of Argyll Inc. is $80 million and its standard deviation is 0.283. The riskless interest ra

40、te is 6%. Suppose Argyll's management offers McIntyre Corp. an option to acquire 100% of Argyll's shares two years from now for $90 million. What is the value of the option?Answer:SErTResult$80$900.0630.283C = $12.76 million9. Refer to question 8. Argyll offers the option to McIntyre at a pr

41、ice of $10 million. Is this investment worthwhile to McIntyre?Answer:NPV= C Initial investment= $12.76 million $10 million= $2.76 millionSince the NPV is positive, the project is worthwhile10. A company is considering a new project that would require an initial investment of $5 million and in its se

42、cond phase one year from now another investment of $105 million to build a plant. From todays perspective the value of the completed plant a year from now is a random variable with a mean of $110 million and a standard deviation of 0.2. The riskless interest rate is 5% per year. Discuss how one shou

43、ld view this situation in the context of the Black-Scholes formula.Answer:By undertaking the first phase of the project, the company would in effect be paying $5 million to “buy an option” that will mature in one year. The option is to undertake phase two of the project, and its “exercise price” is

44、$105 million. The present value of the completed project is $100 million. The Black-Scholes formula says that this option is worth approximately $8 million. The project, therefore, has a positive NPV of approximately $3 million, although if we ignore managements option to discontinue the project aft

45、er the first year and do a conventional DCF analysis the NPV is negative. Our conclusion is that taking managements exibility explicitly into account increases a projects NPV. Moreover, from the theory of option pricing, we know that the value of exibility increases with the volatility of the projec

46、t.Longer Problems1. Discuss why it is important to recognize the similarities between call options and managerial or real options.Answer:(1)It helps in structuring the analysis of the investment project as a sequence of managerial decisions over time.(2)It clarifies the role of uncertainty in evalua

47、ting projects.(3)It gives us a method for estimating the option value of projects by applying the quantitative models developed for valuing call options on stocks.2. Discuss the more complex real options of switching options and compound options.Answer:More complex real options would include switchi

48、ng options, which requires the payment of a fixed amount to change operating or production modes. An example would be an electric generating plant that could switch between using alternative sources of fuel (perhaps coal and natural gas). The option to close down and restart a production line, or ex

49、it and then reenter a market are also examples of switching options that can be modeled as portfolios of American put and call options. Complex investment projects, which are typically organized into a set of alternative stages with critical decision at the end of each stage, can be analyzed as comp

50、ound options in which options on options exist. For example, a major drug companys product cycles consist of a research stage in which alternative compounds are tested, a product development stage in which clinical trials are conducted, and a marketing stage in which the final product is brought to

51、market. Each stage involves new investments that are conditional on exercise of the option to proceed with the previous stage. 3. Discuss real options in the context of the movie industry.Answer:The movie industry provides a good example of the importance of real-option values in evaluating investme

52、nt projects. Often a movie studio will buy the rights to a movie script and then wait to decide if and when to actually produce it. Thus, the studio has the option to wait. Once production starts, and at every subsequent step in the process, the studio has the option to discontinue the project in re

53、sponse to information about cost overruns or changing tastes of the moviegoing public. Another very important managerial option in the movie business is the option of the lm studio to make sequels. If the original movie turns out to be a success, then the studio has the exclusive right to make additional movies with the same title and characters. The option to make sequels can be a signicant part of a movie projects total value.4. W. Jofish Inc. is considering the acquisition of another firm, B.B. John Corp. Let us assume that both of these firms are both 100% equity