Managing Capital (MGT 553) (Summer 2014)

Name: Elba Moya

Date: August 23, 2014

Instructions: Fill in the answer by providing an explanation to the questions. Do not leave anything blank since points will be deducted. Each question is worth 10 points subdivided in increments of points per question, totaling 100% of the exam. The exam may be printed and turned in on Saturday, August 23, 2014. Exam turn in late, points will be deducted. No Exception. If you wish you can e-mail the instructor the exam before the due date.

1. To solve this problem, analysts often use computers to simulate thousands (or millions) of possible outcomes and then estimate the NPV as the average of these simulated outcomes.

(a) What is the name of this simulation (5 points). Monte Carlos simulation (b) What does occur to the percentage of the probability if the expected value increases (2.5 points) the expected value increases - If the percentage of the probability increases, the expected value increases.

c) and if the expected value decreases (2.5 points).- If the percentage of the probability decreases, then the expected value decreases

2. (a) Regarding Exhibit 20-2, how many FDA approvals (2.5 points) and disapprovals (2.5 points) does the charts displays. (b) What is the total value in US millions of dollars of the NPV disapproval (2.5 points) and its total percentage among both the approval and disapproval (2.5) points.

a) The Chart on Exhibit 20-2 displays five FDA approvals and five FDA disapprovals.

b) The total value of dollars of the NPV disapproval is -$100M

$500M, 50%

3. (a) This type of call option are created whenever you face a decision that is costly to reverse. When exercising an option to invest, the ability to purchase a particular stock is irreversible. You can delay in purchasing the stock, but you are