1, Discuss the pricing of stock options? Answer the following in your essay:
i. Which authors are influential 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 the put call parity, what it is and why parity exists?
2,We 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 different?
3, Discuss dividend 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 theory
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?
5, How 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).