MBA Program: Managerial Finance – Sara Options – Case Study

Assignment Requirements

 

Writer please read the Sara Options case study. The only reference is the case study. Answer the question. Look at all the attachments. Pay attention to the red lettered highlights in the instructions attachment. The depth, breadth and quality of the analysis in answering the questions are what are important. Just simply do not just answer the questions. An emphasis is placed on the underlying quantitative analysis supporting your qualitative responses to the question. I have ordered 2 page. This does not include exhibits. You need to include exhibits into this case study. If you need to create from scratch, an exhibit or need to add extra pages to answer the questions, please do not hesitate to communicate with me first and then I’ll order more pages after consultation with you through the message system. I want the question answered in essay format. Do not include the bulleting or numbers in your final page count. Make sure it’s 2 or more pages of original writing plus exhibits. Again, if you need me to order more pages, message me first. Thanks.
Case Analysis Instructions:
Your case study analysis should include the following components:
1. Financial/economic concepts, methodologies, and/or techniques used to support your Analysis
2. Detailed Analysis (include complete process(es) employed)
3. Conclusions, Recommendations, and/or Concerns
Additional Assignment Instructions
• Paper is to be written with senior management as the audience.

1.) Use the Black Scholes options pricing model to value the annual options grant from Clear Lake. How might the value of this options grant change with: How might the market value of Sara’s Clear Lake options help Sara understand the value of her Clear Lake compensation options? Will her private value options generally be higher or lower than the value determined by the Black Scholes model? Why?
o a 10% increase in the stock price?
o a 10% percentage point increase in volatility?
o a one year reduction in the “time to expiration” of the options?
o Explain intuitively why options values change in the ways indicated by your analysis.

The WebScale options are linked to the S & P 500. Because they are linked, the standard deviation (variance) of the returns on Webscale’s stock should be adjusted to include this linkage. The formula to do this is as follows:
σ = ( σ12 + σ22 – 2ρσ1σ2)1/2 , where
σ1 = standard deviation of the returns of asset1
σ2 = standard deviation of the returns of asset2
ρ = correlation of the returns between of the two assets.
Exhibit 5A of the case provides the data to develop this estimate.

FYI: Course Description and Intro:
Managerial Financial MBA Introduces theory and practice of finance within corporations. Topics include inter-temporal choice, valuation, capital budgeting, and structure, working capital management, and risk and return analysis.
After an introductory chapter the course focuses on the concept of valuation and capital budgeting. Discounted cash flow valuation techniques are reviewed starting with basic future and present value concepts and extending to net present value, payback period, internal rate of return, and profitability index techniques. Stock and bond valuation methods are reviewed and summarized. Finally the topics of option, divertive and hedging are covered.
The concept of risk and return is viewed from an historical perspective and risk statistics are developed and used in current financial management application perspectives. The Capital Asset Pricing Model (CAPM) is developed and brought into a portfolio perspective. The concept of beta is introduced and incorporated into risk, cost of capital, and capital budgeting decision making.
Capital structure and dividend policy are discussed. Capital structure topics basic capital structure principles, limits on the use of debt, and the levered firm are reviewed. Dividend policy and other payouts are summarized and linked to basic financial management decision making.
Finally options, futures, and valuations of these financial vehicles are discussed. The derivate market is introduced and the concept of hedging risks through these financial instruments is summarized.

Suggested Review Questions for the Sara’s Options Case

 

1. Use the Black Scholes options pricing model to value the annual options grant from Clear Lake. How might the value of this options grant change with:
   • a 10% increase in the stock price?
   • a 10% percentage point increase in volatility?
   • a one year reduction in the “time to expiration” of the options?

Explain intuitively why options values change in the ways indicated by your analysis.

How might the market value of Sara’s Clear Lake options help Sara understand the value of her Clear Lake compensation options? Will her private value options generally be higher or lower than the value determined by the Black Scholes model? Why?

 

3. What factors, considered in the Black Scholes model, affect the value of Clear Lake’s options to Sara?

 

4. How should Sara value three years worth of Clear Lake options? (How much cash should she be willing to trade off for these options?) An assumption needs to be made about Sara’s departure date. Assume she leaves after either 3 years or 5 years.

 

5. How should Sara value the WebScale options? Will the Black Scholes options pricing model be applicable? How do you think they derived the $107,500 option value shown in Exhibit 1A?

 

6. How should Sara go about financially evaluating each of these three alternatives? What role should taxes play in her evaluation?

(The WebScale options are linked to the S & P 500. Because they are linked, the standard deviation (variance) of the returns on Webscale’s stock should be adjusted to include this linkage. The formula to do this is as follows:

                                σ = ( σ₁² + σ₂² – 2ρσ₁σ₂)^1/2 , where

                                σ₁ = standard deviation of the returns of asset₁

                                                σ₂ = standard deviation of the returns of asset₂

                                                ρ   = correlation of the returns between of the two assets.

Exhibit 5A of the case provides the data to develop this estimate.)

 Sara’s Options

 

S = K = Po

K = Po * (1 + S.P.%)

S = Po * (1 + SP% + Outperf. %)

(S – K) = Po * Outperf. %

Writer, please read the Sara Options case study. The only reference is the case study. Answer the question. Look at all the attachments. Pay attention to the red lettered highlights in the instructions attachment. The depth, breadth and quality of the analysis in answering the questions are what are important. Just simply do not just answer the questions. An emphasis is placed on the underlying quantitative analysis supporting your qualitative responses to the question. I have ordered 2 page. This does not include exhibits. You need to include exhibits into this case study. If you need to create from scratch, an exhibit or need to add extra pages to answer the questions, please do not hesitate to communicate with me first and then I’ll order more pages after consultation with you through the message system. I want the question answered in essay format. Do not include the bulleting or numbers in your final page count. Make sure it’s 2 or more pages of original writing plus exhibits. Again, if you need me to order more pages, message me first. Thanks.

Case Analysis Instructions:

Your case study analysis should include the following components:

1. Financial/economic concepts, methodologies, and/or techniques used to support your Analysis
2. Detailed Analysis (include complete process(es) employed)
3. Conclusions, Recommendations, and/or Concerns

Additional Assignment Instructions

• Paper is to be written with senior management as the audience.

1.) Use the Black Scholes options pricing model to value the annual options grant from Clear Lake. How might the value of this options grant change with: How might the market value of Sara’s Clear Lake options help Sara understand the value of her Clear Lake compensation options? Will her private value options generally be higher or lower than the value determined by the Black Scholes model? Why?

o    a 10% increase in the stock price?

o    a 10% percentage point increase in volatility?

o    a one year reduction in the “time to expiration” of the options?

o    Explain intuitively why options values change in the ways indicated by your analysis.

 

The WebScale options are linked to the S & P 500. Because they are linked, the standard deviation (variance) of the returns on Webscale’s stock should be adjusted to include this linkage. The formula to do this is as follows:

σ = ( σ12 + σ22 – 2ρσ1σ2)1/2 , where

σ1 = standard deviation of the returns of asset1

σ2 = standard deviation of the returns of asset2

ρ = correlation of the returns between of the two assets.

Exhibit 5A of the case provides the data to develop this estimate.

 

FYI: Course Description and Intro:

Managerial Financial MBA Introduces theory and practice of finance within corporations. Topics include inter-temporal choice, valuation, capital budgeting, and structure, working capital management, and risk and return analysis.

After an introductory chapter the course focuses on the concept of valuation and capital budgeting. Discounted cash flow valuation techniques are reviewed starting with basic future and present value concepts and extending to net present value, payback period, internal rate of return, and profitability index techniques. Stock and bond valuation methods are reviewed and summarized. Finally the topics of option, divertive and hedging are covered.

The concept of risk and return is viewed from an historical perspective and risk statistics are developed and used in current financial management application perspectives. The Capital Asset Pricing Model (CAPM) is developed and brought into a portfolio perspective. The concept of beta is introduced and incorporated into risk, cost of capital, and capital budgeting decision making.

Capital structure and dividend policy are discussed. Capital structure topics basic capital structure principles, limits on the use of debt, and the levered firm are reviewed. Dividend policy and other payouts are summarized and linked to basic financial management decision making.

Finally options, futures, and valuations of these financial vehicles are discussed. The derivate market is introduced and the concept of hedging risks through these financial instruments is summarized.

 

Order Now

http://zelessaywritings.com/order/

 

You can place an order similar to this with us. You are assured of an authentic custom paper delivered within the given deadline besides our 24/7 customer support all through.

 

[order_calculator]