• Determine two to three (2-3) methods of using stocks and options to create a risk-free hedge portfolio can be created. Support your answer with examples of these methods being used to create a risk-free hedge portfolio.
• * From the scenario (document is attached), create a unique hypothetical weighted average cost of capital (WACC) and rate of return. Recommend whether or not the company should expand, and defend your position.

Do you think offering stock options to employees is a good idea?

Do you think the stock options can encourage employees and management to commit fraud?

A couple of sentences for each question; nothing major:)

FIN534 Week 5 Scenario Script: The Weighted Average Cost of Capital Slide Scene/Interaction Narration # 1 Scene 1 Intro slide Slide 2 Scene 2 FIN534_5_2_Joe-1: Hello, everyone. It has been awhile since we have seen each other! Long time no see everyone. My job has me out of the office more than usual, but I wanted to stop by and congratulate you on some fabulous work so far. You have been asked to do a lot of calculating as part of our financial analysis regarding our current state at TFC and the expansion project. I can see that your Strayer University education is paying off. They are really preparing you for making informed business decisions. banner in a break room with cake or goodies? Joe there Show Strayer banner End of scene Wacc is pronounced like whack FIN534_5_2_Joe-2: I brought some snacks and refreshments; help yourself. They are in the break-room. At TFC we encourage our employees to work out but that does not mean you cannot have some snacks. It just means you will have to work out a little more at the gym later. (laughter) FIN534_5_2_Joe-3: Well, I have to go. I have a busy day - full of meetings, but before I leave I would like you to continue your financial analysis. First, I would like you to do some research on financial options as we may be interested in using some of our cash to invest in those financial vehicles. Secondly, I would like you to determine our WACC, or weighted average cost of capital. Good luck and I'm excited to see the reports on my desk. Slide 3 Scene 3 Don in break room. Don's voice is excitable and FIN534_5_2_Joe-4: Have a great day! You are the best financial team in the world! FIN534_5_3_Don-1: Joe is the most energetic and positive-minded CEO on the planet. He gave us some tall orders but, I am confident you and Linda will complete them convincing. Go to next slide with the highest standards. FIN534_5_3_Linda-1: Yes Don, we will. Our first task is to review what our financial options are in case we want to go down that investment road in the future. I have always learned that the more you are prepared ahead of time, the better the decision making is. FIN534_5_3_Don-2: I agree, Linda. That is why we have you and your Intern on this highly visible project. We want to make sure we are going to make the best practical decision for TFC. I will leave you two now so you can start preparing. Slide 4 Slide 5 Scene 4 Linda In conference room with a finance book in hand Show Call Option, Strike (Exercise) Price and Put Option on a chart Go to next slide Scene 5 Linda In conference room with a finance book in hand Show Call Option, Strike FIN534_5_3_Linda-2: Let us meet in the conference room. I will meet you there. I want to pick up some of my textbooks dealing with financial options. FIN534_5_4_Linda-1: Here we are back in what I am now calling the \"Financial Management Room\". I was able to find some text books on financial options. They are the part of investing that I like to call \"The Great Unknown.\"; because you are taking a chance on how stock will react in the future. An option is basically an investor's choice to buy or sell a particular security at a predetermined price in the future and within the certain time period. For example, you may only have ninety days to have the option of buying a share of stock at an already agreed upon price. Also, options are traded on an options exchange market just like stocks are traded on a stock exchange market. FIN534_5_5_Linda-1: The two types of options that we are going to look at are the Call Option and Put Option. FIN534_5_5_Linda-2: With a Call Option, the holder of the option is given the right to (Exercise) Price and Put Option on a chart Go to next slide buy a share of stock at a predetermined price within a certain period. If the owner decides to buy the share, then it is exercised. The predetermined price is called the strike or exercised price, because that is the agreed upon price and it is only carried out if the owner strikes a deal. FIN534_5_5_Linda-3: Let us look at an example. If someone buys a call option for two dollars and it comes with the terms of a strike price of thirty dollars a share with an expiration date of six months, the owner has six months to buy a share of stock at thirty dollars. If the stock is currently selling for twenty dollars, the owner would not exercise that option as the strike price is greater than the trading price. However, if the trading price goes over thirty dollars, actually thirty two since the owner paid two dollars for the option, then the owner has to decide if the option should be exercised. In our example, if the trading price is forty dollars then the owner should exercise the option as the share can be bought for thirty dollars. Whenever there is a profit involved, meaning that the stock price is greater than the exercised price, the option is said to be \"in-the-money.\" In our example, the owner would be \"in-the money.\" When the owner is \"out-of-the-money\