capital investment appraisal (CIA) techniques including Payb

标题为第1,4 5 6 的题必做， 7跟8任选一道

Question 1

指导assignmentCritically discuss the capital investment appraisal (CIA) techniques including Payback (PB), Average rate of return (ARR), internal rate of return (IRR), Net present value (NPV) and profitability index (PI) under rationing and un-rationing conditions. (Total 25 marks)

Question 4

Critically discuss the financing methods including raising equity capital and short-term and long-term debt financing, in the light of current economic circumstances. (25 Marks)

Question 5
a. Use Black & Scholes model to calculate the value of the following option (15 marks)
The current share price is £36
The exercise price of option in 90 days is £40.
Standard deviation of asset is 0.4
The annual bank loan interest rate is 10%.

b. Critically the Black & Scholes model in pricing financial options. (10 marks)

(Total 25 marks)

Question 6

a. Mr. John gives you a non-retractable offer to buy your house for £150 million at anytime within the next year. Give the following decision tree of possible outcomes, what is the most Mr. Smith could charge for the offer? (15)

Year 0 Year 1 Year 2

120 (0.6)

100 (.06)

90 (0.40
NPV
70 (0.6)

50 (0.4)
40 (0.4)

120 (0.6)

100 (0.6)

90 (0.4)

NPV

150 (0.4)

b. Critically discuss the usefulness of real options in capital investment. (10 marks)
(Total 25 marks)

Question 7

The expected return on the market portfolio has been estimated to be 12%, with a risk of 16% (as measured by the standard deviation of the returns). Risk-free assets offer a return of 4%.

a. Using a diagram, explain what is meant by the market price of risk. Calculate the market price of risk implied by the data.
7 marks

b. The managers of a large pension fund have been offered the opportunity to buy £200,000 worth of shares in a company newly listed on the LSE. Trends from AIM show that the average annual return for the past five years is 8%, with a risk of 8%. As part of the fund management team, comment on the advisability of taking up the offer.
8 marks

c. Show how different attitudes to risk aversion lead to different investment strategies by investors. Discuss what problems an investor might face “trading on the margin” in the current financial climate.
10 marks

(Total 25 marks)

Question 8

The table below gives some data on five leading companies listed on the LSE.
Company Sector Beta value* Yield %pa
(2007-2008)*
Anglo-American Mining 1.86 6.41
William Morrison Retail 0.66 1.96
Aviva Insurance 1.61 17.26
GlaxoSmithKlein Pharmaceuticals 0.54 5.52
HSBC Banking 1.07 15.47
*Source: Financial Times#p#分页标题#e#

a. Explain the meaning of the beta values and what they suggest about each company.
8 marks

b. Assuming that the expected return on the FTSE100 index is 9.5% and the risk-free interest rate is 4.5%:

i. Calculate the expected return on the shares in each company.
5 marks
ii. Calculate the expected return on a portfolio invested equally in each company.
4 marks
c. 指导assignment A large sovereign wealth fund is thinking of taking a stake in some of the companies listed in the table. Using the data on the yields and your calculations of expected returns, advise the fund on which companies to invest in. Discuss the likely shortcomings of the advice.
8 marks