Is it possible to quantify the value of managerial

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Entrepreneurial Finance
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Chapter 11 / Exercise 1
Entrepreneurial Finance
Leach/Melicher
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3. Is it possible to quantify the value of managerial flexibility associated with the Merseyside project? 4. What are the differences in the ways Elizabeth Eustace and Lucy Morris have advocated their respective projects? How might these differences in style affect the outcome of the decision? 5. Which project should James Fawn propose to the chief executive officer and board of directors? 1. Evaluate Amoco’s and Apache’s corporate objectives and strategies. Is it reasonable to expect that the MW properties are more valuable to Apache than to Amoco? What sources of value most plausiblyaccount for the difference between buyer and seller? 2. Structure and execute a discounted cash flow valuation of all the MW reserves using APV. How much are the reserves worth? Is your estimate more likely to be biased high or low? What are the sources ofbias? 3. How would you structure an analysis of MW as a portfolio of assets-in-place and options? Specifically, which parts of the business should be regarded as assets-in-place and which as options? What kinds ofoptions are present? Should this approach yield a higher or lower value than the all-APV approach youemployed above? 4. Execute the analysis you structured in question 3, beginning with assets-in-place. How risky are the assets that underlie the options; i. e., how would you estimate for each? How much is the wholeportfolio worth? 5. Assuming a sale goes through, how does Apache exercise each of the various options? When should itdo so?
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Entrepreneurial Finance
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Chapter 11 / Exercise 1
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1. What problems face Amoco and Apache in bringing this transaction to completion? What are the firms’ objectives? 2. What possible alternatives might exist to solve the stalled negotiations? 3. How can the proposed solution in Exhibit 7 be expressed in terms of financial contracts? Why do you think the deal is structured as given in Exhibit 7? 4. How much are the price-sharing and price-support arrangements worth? 5. Should Amoco accept the proposed deal from Apache, including the price-sharing and price-supportarrangements? 1. In the absence of a hedging program using financial instruments, how sensitive would Barrick stock be to gold price changes? For every 1% change in gold prices, how might its stock be affected? How could the firm manage its gold price exposure without the use of financial contracts?

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