Maximum Word Limit 2000 words 1. It is often said that equity in a geared company is like a call option. Explain how this works and what the option variables are in the company and how they affect the value of equity (8 marks) 2. Explain what a real option to expand is in the context of capital budgeting and explain using a company (real or made up) to illustrate your answer. (8 marks) 3. Explain how useful Economic Value Added (EVA) is as a performance measure compared to earnings per share and highlight EVA's advantages and disadvantages. (8 marks) 4. Discuss the factors that affect the business risk of a company. Use the example of a software company or a chemicals company to illustrate your answer. (8 marks) 5. Jasper's is a quoted restaurant company, listed on the UK stockmarket. Five years ago, due to mismanagement, the company got into financial difficulties which resulted in the company stopping its dividend payments. The shareholders brought in new management who reorganised the company, and Jasper's has been steadily increasing profits for the last three years. It now has sound financial management. The board is now considering paying a dividend again, for the first time in five years. The finance director has pulled together the views of the board, which are: the company should introduce a stable dividend policy the company should not bother with dividends as they are irrelevant to shareholders that the company should only pay a dividend when it has run out of investment projects, and that is not likely in the short term (next 2-3 years) Discuss further the three views that the board have put forward. What are the merits or drawbacks of each policy? Maximum Word Limit 2000 words 1. It is often said that equity in a geared company is like a call option. Explain how this works and what the option variables are in the company and how they affect the value of equity (8 marks) 2. Explain what a real option to expand is in the context of capital budgeting and explain using a company (real or made up) to illustrate your answer. (8 marks) 3. Explain how useful Economic Value Added (EVA) is as a performance measure compared to earnings per share and highlight EVA's advantages and disadvantages. (8 marks) 4. Discuss the factors that affect the business risk of a company. Use the example of a software company or a chemicals company to illustrate your answer. (8 marks) 5. Jasper's is a quoted restaurant company, listed on the UK stockmarket. Five years ago, due to mismanagement, the company got into financial difficulties which resulted in the company stopping its dividend payments. The shareholders brought in new management who reorganised the company, and Jasper's has been steadily increasing profits for the last three years. It now has sound financial management. The board is now considering paying a dividend again, for the first time in five years. The finance director has pulled together the views of the board, which are: the company should introduce a stable dividend policy the company should not bother with dividends as they are irrelevant to shareholders that the company should only pay a dividend when it has run out of investment projects, and that is not likely in the short term (next 2-3 years) Discuss further the three views that the board have put forward. What are the merits or drawbacks of each policy
