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WEEK 5 DISCUSSIONS

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Discussion 1: Financial Options and Applications and Weighted Average Cost of Capital

 

A. Provide specific price (i.e., option premium) and other information (i.e., strike price, maturity) about a call option on the stock of the company that you are studying during this class (the company that you are using for the Financial Research Project)?  What is a specific example of how an investor might use the call option that you selected?

 

B. Provide specific price (i.e., option premium) and other information (i.e., strike price, maturity) about a put option on the stock of the company that you are studying during this class (the company that you are using for the Financial Research Project)?  What is a specific example of how an investor might use the put option that you selected?

 

Obtaining Information About Specific Options

 

The Discussion 1 this week requires using specific options.  This information may help you to obtain the necessary information:

 

The CBOE (Chicago Board Options Exchange) is a convenient source of information about stock options.  It is very easy to obtain the “option chain” (listing of all options on a particular stock) by entering the “Ticker Symbol” of the underlying stock.

 

The information about options can be obtained at:  

 

http://www.cboe.com/delayedquote/quotetable.aspx

 

 

C. From the scenario, create an estimate of TFC’s weighted average cost of capital (WACC) and its required rate of return? 

What is TFC’s WACC and how is it calculated (need figures, see Week 5 Scenario)?

What is TFC’s required rate of return on common stock and how is it calculated (need figures, see Week 4 Scenario)?

How should TFC decide whether to expand or not expand, that is, what indicators should it use to make this decision (do not need the amounts – that will be next week)?

Calculate TFC’s WACC Student.xlsx