Answers

Part 3 Examination Paper 3.7

Strategic Financial Management
1

December 2003 Answers

Report on the proposed investment in Terrania

The investment will be evaluated using both financial and non-financial criteria, including the possible political risk involved with
investing in Terrania. However, international direct investment is sometimes undertaken for strategic reasons, which, at least in the
short term, might outweigh financial considerations.
(a)

Financial appraisal
Projected cash flows:
Year
Sales1
Labour 300 workers2
Local components
German component3
Distribution
Fixed costs

Total costs
Taxable cash flows
Taxation (20%)
Tax saved from depreciation (v)
Equipment
Working capital (iii)

(580)
(170)

(750)

Remittable to the UK
1 50,000

1
659
228
90
41
20
50

(429)
230
(46)
29
(34)

179

Terranian francs (million)

2
3
735
785
262
288
104
114
47
52
23
25
58
63

(494)
(542)
241
243
(48)
(49)
22
16
(31)

184

(23)

187

4
838
317
125
57
28
70

(597)
241
(48)
12
150
(26)

329

284

284

x 480 x 2744 = 6586 etc.

2 Labour

cost has been increased by a factor of 12 to reflect the use of 300 workers in order to gain use of the rent-free
factory. The cost of 50 extra workers is (3,800 x 50,000)/5 or 38 million francs. The after tax costing of renting the factory
would be 75 million x 08, or 60 million francs. Avto would select the rent free factory as the cost is lower.

3 30

x 50 x 2744 = 4116 etc.

Year
Remittable
Additional 10% UK tax on
Terranian cash flow (vi)
Discount factors (15%)(iv)
Present values

0
(2035)

1
413

(2035)
1
(2035)

(020)

393
0870
342

UK cash flows ( million)

2
3
380
362
(027)

353
0756
267

(031)

331
0658
218

4
596

5
482

(033)

563
0572
322

0497
240

The expected NPV is: (646) million. The expected investment in Terrania if viewed alone does not appear to be financially
viable. However, the closure or downsizing of UK operations should also be considered. Closure would have a net cost, after
tax, of at least 45 million (more if the full existing market in the EU cannot be supplied from Terrania), and might have
other adverse effects on the local community that have not been quantified, and on the government in terms of extra support
for redundant workers and their families. Downsizing would still have some of these effects, but would also offer the
opportunity of selling to a larger market that could not otherwise have been supplied from Terrania alone.
If the UK operation is downsized, the net cost, after tax, of downsizing is 4 million, and expected annual net cash flows are
4 million, less tax at 30%, 28 million. Increasing these by UK inflation:
Year
Cash flows
Discount factors (12%)
Present values

0
(40)
(40)

1
286
0893
255

2
294
0797
234

3
303
0712
216

4
312
0636
198

The total present value of cash flows from downsizing is 5.03 million over the four-year period. Downsizing results in a
much more favourable outcome than total closure. If a period of longer than four years were considered the expected present
value from downsizing would be even larger.
Overall the investment in Terrania plus downsizing does not appear to be financially viable, with an expected NPV of (143)
million. However, one major problem with the cash flow estimates is the realisable value used for the Terranian assets in year
4. If the Terranian investment is to continue beyond four years, which is implied in the information provided, then the present
value of cash flows beyond four years should be considered, not the realisable value of assets. This present value is likely to
be substantially higher. For example, even ignoring growth, the value of operating cash flows (TF 179 million in year 4) for
an additional ten years would be 179 x 5019 = TF 898 million, rather than the TF 150 million estimated realisable value
of assets.

15

(b)

Wider commercial considerations

Aspects of the cash flows that would need to be investigated further before a decision was made include:
(i)

What rent would be payable for the factory after year 4?

(ii)

How accurate are the forecasts of sales, costs, tax rates etc? Sensitivity analysis or simulation analysis might be used to
investigate the effect of changes in key cash flows.

(iii) Will the investment lead to other opportunities (future options)? If so an attempt should be made to value such options.
(iv) The strategic importance of the investment to the company.
(v)

The political risk of Terrania. The fact that the country has had twelve changes of government in the last ten years does
not necessarily mean that there is substantial political risk. Countries such as Italy have also experienced frequent
changes of government. However, the degree of international indebtedness and potential lack of support from the IMF
could affect the future prospects of the country. It would be useful to know the ability of Terrania to service its debt, given
the problems with the banana crop and competition from neighbouring countries.

(vi) The existence of better opportunities elsewhere. For example would it be possible to produce the DVD players in
neighbouring countries where labour costs are even lower?
(c)

The impact of blocked remittances

Avto should investigate how likely are further restrictions on remittances from Terrania. If remittance restrictions are introduced
Avto could partially mitigate their effects by investing in the Terranian money market, but the effect of the restrictions would
still reduce the present value of excepted cash flows by approximately 183 million (see below) unless increased direct
investment in Terrania was planned. Remittance restrictions might be avoided by increasing transfer prices paid by the foreign
subsidiary to the parent company, or by trying to move cash out of Terrania by means of other forms of payment such as
royalties, payment for patents, or management fees. It is likely that the Terranian government would try to prevent many of
these measures being used.
If remittances were blocked for four years and the funds invested in the Terranian money market.
Year 1 179 x (115) (110)2 =
Year 2 184 x (110)2
=
Year 3 187 x 110
=
Year 4
Remittable at end year 4
m equivalent
Present value m

249
223
206
329
1,007
1824
1043

Present value of remittable funds (without additional UK tax) if no blockage exists is 1226 million. The blockage would
reduce the expected present value of cash flows by approximately 183 million.
Any final decision regarding investment in Terrania must also take into account other non-financial factors such as the nature
of the countrys legal system, bureaucracy, efficiency of internal processes, cultural and religious differences, and local
business practices and ethics.
Appendix:
(i) Based on purchasing power parity the expected exchange rates are:
Spot
Year 1
Year
Year
Year
Year

2
3
4
5

Spot
Year 1
Year
Year
Year
Year
(ii)

Terranian franc/Euro
2332
2744
3064
3272
3494
3732
Terranian franc/
3685
4335

2
3
4
5

4840
5169
5520
5895

year 1 120 x 2332 = 2744 etc

102

year 1 120 x 3685 = 4335 etc

102

The feasibility study is irrelevant as it is a sunk cost

(iii) Working capital is assumed to increase each year in line with inflation in Terrania, and to be released at the end of year 5.
(iv) Discount rates:

16

Terranian investment:
Ko = 45% + (115% 45%) 15 = 15%
UK investment:
Ko = 45% + (115% 45%) 11 = 122%
12% will be used as the discount rate for UK investments.
(v)

Tax allowable depreciation (francs million)

Book value
Depreciation (25%)
Year 1
580
145
Year 2
435
109
Year 3
326
182
Year 4
245
161

(vi) Additional UK tax

Year
Sales less cash costs in Terrania
Depreciation

1
230
145

185
185
020

Taxable in Terrania
Extra 10% tax
m equivalent
2

Tax saved (20%)

29
22
16
12
2
241
109

132
132
027

3
243
182

161
161
031

4
241
161

180
180
033

Briefing document for Snowwell plc.

(a)

The current SO score may be estimated as follows:

Weighted score
43
S1: x 35
=
348
(193 215)
S2: x 18 =
436
348
S31: x 025
=
267
336
S42: x 069
=
620
Total SO score
=

0432
(0091)
0326
0374
1041

Notes:
Market value of equity is 232 pence x 150 million shares = 348m
Market value of debt is 150 x 1155 = 17325m + 94m = 2673m
1

Given a current redemption yield of 8% the market price of 14% 100 par loan stock with three years to maturity is estimated
to be:

14 x 2577
=
3608
100 x 0794
=
7940

11548

Operating free cash flow may be estimated by:

Profit before tax

+ Depreciation
+ Interest (1 tax rate)

Tax

Increase in working capital

Replacement investment
Free cash flow

million
23
38
14
(7)
(2)
(35)

31

Snowwells weighted average cost of capital is:

E
D
348
267
ke + kd (1t) = 12% x + 8%(1 03) = 922%
E+D
E+D
615
615
31
The present value to infinity of the current operating free cash flow is = 336m
00922
N.B other definitions of free cash flow are possible, including adjustments for the change in loans and disposal of assets.

17

(b)

The SO model suggests that a score of 104 is just above the level of probable failure, and at the low end of the remedial
action range. However, this model is unlikely to be useful in predicting the probability of failure of Snowwell plc because:
(1) The model was produced in 2001 and might not still be relevant in 2003.
(2) Models predicting corporate failure are usually tailored to specific industries and specific size of companies. This general
model might not be applicable to Snowwell.
(3) There is no evidence about the predictive ability of the model.
(4) Models which are based upon accounting ratios suffer the same weaknesses as the accounting systems on which they
are based.
(5) No matter what such models predict, managers may be able to take remedial action that will prevent corporate failure.

(c)

Other ways by which corporate financial distress or failure might be predicted include:
(1) Alternative models predicting failure such as those of Argenti, Marais and Beaver, or use of probit and logit analysis.
(2) Financial ratios, especially those focusing on liquidity, cash flows, gearing and market values.
(3) Accounting information including levels of debt, liquidity, payment periods, contingent liabilities, and post balance sheet
events.
(4) Macro events affecting the company, including inflation and foreign exchange rates.
(5) Market information, especially the potential growth of the jewellery sector.
(6) Actions of competitors.
(7) Comment by company directors (e.g. profit warnings), analysts and newspapers
(8) Audit reports if accurate!
(9) Credit ratings produced by specialist agencies and banks.

(d)

Snowwell is not recommended to take any action based upon the SO model. Any recommendation would be assisted by
additional financial analysis, especially of growth trends and ratios.
Selected ratios and growth trends:
% Growth
Turnover
69
Fixed assets
63
Stock
228
Creditors
181
Debtors
(59)
Current ratio
Quick ratio

2003
090
017

2002
087
020

Gearing (market value of M & LT debt/ market value of equity) 267/348 or 77%
Interest cover 43/20 or 215 times
Current and quick ratios are low, but probably not unusually low for a retailer. Gearing at 77% is significantly higher than the
industry average and might be a cause for concern, and interest cover at 215 is quite low. The immediate problem is that
stock has increased much more than turnover, leading to a similar increase in creditors. Snowwells managers should urgently
review the companys stock levels. Reducing stock would release cash flow and might allow gearing to be reduced.
Consideration might also be given to reducing the level of dividends paid, unless profits are expected to increase in 2004.
(e)

The organisation providing the forecast is considered to be reputable and is likely to have tailored the forecast to Snowwell
using analysis which has been specifically related to Snowwells size and industry. If Snowwell could not easily replicate the
analysis itself, and if the forecasting company has a good track record of predicting failure it might be worth purchasing the
forecast. However, if the market in which Snowwell operates is considered to be efficient, then market analysts will already
be aware of the publicly available information used in the model, and this should already have been incorporated in the share
price of 232 pence. A price of this level does not suggest that investors feel that the company is likely to fail in the near future.
If the market is not considered to be efficient, and/or the forecasting technique is believed to be superior, and to convey
significant new information, then Snowwell might have a reason to purchase. In such circumstances a purchase might be
conditional upon the information not being released to any third parties, although if relevant information was then to be
withheld by Snowwells managers this might not be considered to be ethical, and acting in the best interests of all
stakeholders.
N.B. The SO model used in the question is a fictitious model

18

(Alternative calculations to those shown might be equally valid)

In order to discuss the validity of Megasals two-year forecasts it is necessary to attempt to ascertain the basis upon which they
have been made.
(i)

Turnover and profit forecasts:

The turnover forecasts include the proposed acquisitions, and 5% annual expected growth for Megasal, but no growth prior
to acquisition for the victim companies. If acquisition occurs, as long as the victims are growing, the overall turnover is likely
to be underestimated.
Without acquisitions Megasals turnover is expected to grow to
Adding the proposed acquisitions at their existing turnovers, with 5% growth per year
in Megasals turnover

Year 1
1,937

Year 2
1,984

1,183

1,762

The profit forecasts appear to have assumed that along with turnover, Megasals profit before tax will increase by 5%. To this
has been added the existing profit of the victim companies. There is unlikely to be a perfect relationship between turnover
growth and profit growth. Profit forecasts should be based upon all expected relevant revenues and expenses, not a rough
assumed percentage change in turnover.
(ii)

Market value of equity and PE ratios:

The managing directors estimates of the number of shares and future share price are even more difficult to justify.
Megasal
ANKO
BHYR
LKER

Share price (pence)

680
210
68
82

Market value of equity (m)

680
210
102
164

EPS (pence)
580
240
867
145

PE ratio
1172
875
784
566

Issue of an extra 31 million shares by Megasal in year 1 implies a value, at Megasals current share price, of 211 million,
which is approximately the current market value of ANKO. The implication is that ANKO would be purchased entirely with
equity at its current market price. This is unrealistic for two reasons:
(i) The share price of both companies will have changed in one years time
(ii) This assumed purchase price does not include any premium on acquisition over the current market price. Most
acquisitions include a premium over the existing price to make the bid attractive to the victims shareholders, and often
the premium is substantial.
In year two the increase in the number of shares, 39 million x 680 pence, or 265m is once again approximately equal to
the sum of the current market values of the two companies to be acquired. Unless Megasals share price increases to at least
the same rate as the share prices of the proposed victim companies, Megasal is likely to have to issue more than 39 million
shares in order to acquire the companies.
An estimate of the post-acquisition share price might be made using PE ratios. This is only likely to be a reasonable
approximation if the acquisitions were to take place immediately, and is impossible with any accuracy when future share
prices and EPS are unknown. Nevertheless Megasal appears to have estimated the increases in share prices by this method.
Year 1 EPS 85/131 = 649 pence x PE of 1172 is 761 pence
Year 2 EPS 131/170 = 771 pence x PE of 1172 is 904 pence
Problems of this method include:
(i) It assumes Megasals PE is unchanged in year 1 and year 2
(ii) It assumes that Megasals PE may be applied to the entire earnings of the new entity. This is sometimes known as
bootstrapping where a company with a relatively high PE ratio attempts to create value by acquiring companies with
lower PE ratios. In the absence of any synergy from the acquisition the new PE should, in theory, be the weighted
average of the PE ratios of the companies. If there is no new value created the share price should not increase in the
way that Megasal has estimated. Of course synergies might exist, which would have an effect on share price, as might
costs of reorganisation and restructuring post-acquisition, but none are detailed.
(iii) It ignores the risk of the companies. The acquired companies are likely to have different levels of systematic risk to
Megasal which would affect the cost of capital and share price.

19

(a)

In order to hedge against possible future falls in share prices stock index futures should be sold. If share prices do actually
fall then the loss would be offset by a gain on such futures contracts, although in most cases the gain will not exactly match
the cash market loss. As stock index futures relate to a portfolio with a beta of approximately 1 (the market portfolio), the size
of any hedge will need to be adjusted for the relative systematic risks of the portfolio held and the market portfolio.
The 1 December market value of the portfolio is 40492 million.
The market weighted beta of the eight share portfolio is:
33 (074) + 443 (115) + 3276 (065) + 4784 (132) + 3192 (156) + 816 (082) + 801 (111) + 534 (143)
= 4418, which divided by the portfolios market value of 40492 gives a beta of 1091.
As the portfolio beta is higher than one, in order to protect against a fall in share price the number of contracts used should
be increased to reflect this difference in beta.
The suggested hedge is to sell

(b)

40,492,000
- x 1091 March futures contracts or 1,147 contracts.
38,500

On 31 March the new portfolio value based upon the prices given is 36,454,000, a loss of 4,038,000.
The gain on the futures contracts is (3,850 3,625) 1,147 x 10 = 2,580,750
2,580,750
The hedge efficiency is or 639%
4,038,000
The hedge has not made sufficient profit to offset the cash market loss. Possible reasons for this are:
(i) The actual share prices of the portfolio have fallen by more than would be expected for a portfolio with a beta of 1091.
(ii) The portfolio could not be hedged by an exact number of contracts. However, for a portfolio of this size the effect of an
inexact hedge is likely to be insignificant.

(c)

Stock index futures have three major advantages over buying and selling of actual shares:
(i) Transactions costs of futures contracts are much less than those associated with buying and selling shares. The futures
hedge would have to be undertaken on many occasions before the cost was equivalent.
(ii) The pension fund manager may not wish to sell the actual shares, especially as he expects their prices to start to rise.
(iii) Even in well-developed markets the sale of several million shares might cause a price reduction, and the manager might
not receive the desired price for the shares.

(d)

Halving the systematic risk could be achieved in a number of ways, but the simplest is probably to buy long term interest rate
futures to the same value as the existing portfolio. The underlying government bonds related to the long term interest rate
futures may reasonably be assumed to be almost risk free, i.e. have a beta of approximately zero. The combined beta of these
futures contracts and the share portfolio will therefore be approximately half of the current portfolio beta (05 x 1091 + 05
x 0 = 05455).

Using the Black-Scholes model for European options:

Ps is estimated to be either 350e (-0.067)(15) or 500e (-0.067)(15) = 12811 or 18302
The exercise price, X = 400
The interest rate, r = 005
Time, T = 15
Volatility, = 0430
Using call price = Ps N(d1) X e rT N(d2).
If Ps is 12811
ln (12811/400) + 005 (15)
d1 = + 05 (043) (15)5
043 (15)5
or 0233 + 0833 = 0600
d2 = d1 (T)05 = 0600 1665 = 1065
From normal distribution tables:
N(d1) = 05 + 0226 = 0726
N(d2) = 05 0357 = 0143
Inputting data into call price = Ps N(d1) X e rT N(d2)
(0143)
Call price = 12811 (0726) 400
e(005)(15)
= 9301 2702 = 6599 million
If Ps is 18302
d1 = ln
(18302/400) + 005 (15)
+ 05 (043) (15)5
043 (15)5
or 0019 + 0833 = 0814
d2 = d1 (T) 05 = 0814 1665 = 0.851

20

From normal distribution tables:

N(d1) = 05 + 0292 = 0792
N(d2) = 05 0303 = 0197
Inputting data into call price = Ps N(d1) X erT N(d2)
(0197)
Call price = 18302 (0792) 400
e(005)(15)
= 14495 3722 = 10773 million
Under both scenarios the call option has a value in excess of the static NPV estimates. With a 350 million present value from
sales the expected NPV is (50 million), but the value of the call option is 66 million. With a 500 million present value from
sales the expected NPV is 100 million, whilst the call option value is 108 million. If the data are correct then the option pricing
model would suggest that the company should develop the patent no matter which present value occurs.
However, valuing a long-term option such as this is subject to restrictive assumptions and will be subject to a considerable margin
of error. Possible problems include:
(i)

The accuracy of the present value forecasts, and the use of the correct discount rate to assess their risk.

(ii)

The accuracy of the estimated development cost of the drug for commercial use. This estimate could be subject to substantial
error as it relates to a new product and probably to new technology.

(iii) Accuracy of the estimated variance. As this is a new drug the variance of returns from other Biotech companies might not be
relevant, and the Black-Scholes model is quite sensitive to this variable. The model also assumes that this volatility will be
constant for the 15 year period which is very unlikely.
(iv) The Black-Scholes model was developed for European options. As development of the drug could take place at any time
during the 15 year period the option is an American option rather than a European option.
(v)

What will happen after 15 years? Although competition will probably eliminate most abnormal returns the company is likely
to have built up a strong brand image and could still generate positive NPVs after this time which have not been included in
the above calculations.

(vi) How likely is it that a competitor might develop a superior drug? If this occurs the projections will be very adversely affected.
Because of the potential margin of error, Bioplasm should be cautious about accepting the values produced by the option pricing
model, although they might be used as part of the overall decision process. This should also include the NPV estimates and
strategic considerations. The company would also be advised to investigate possible cash flows after the patent period has expired.

Non-financial issues, ethical and environmental issues in many cases overlap, and have become of increasing significance to the
achievement of primary financial objectives such as the maximisation of shareholder wealth. Most companies have a series of
secondary objectives that encompass many of these issues.
Traditional non-financial issues affecting companies include:
(i)

Measures that increase the welfare of employees such as the provision of housing, good and safe working conditions, social
and recreational facilities.
These might also relate to managers and encompass generous perquisites.

(ii)

Welfare of the local community and society as a whole. This has become of increasing significance, with companies accepting
that they have some responsibility beyond their normal stakeholders in that their actions may impact on the environment and
the quality of life of third parties.

(iii) Provision of, or fulfilment of, a service. Many organisations, both in the public sector and private sector provide a service, for
example to remote communities, which would not be provided on purely economic grounds.
(iv) Growth of an organisation, which might bring more power, prestige, and a larger market share, but might adversely affect
shareholder wealth.
(v)

Quality. Many engineering companies have been accused of focusing upon quality rather than cost effective solutions.

(vi) Survival. Although to some extent linked to financial objectives, managers might place corporate survival (and hence retaining
their jobs) ahead of wealth maximisation. An obvious effect might be to avoid undertaking risky investments.
Ethical issues of companies have been brought increasingly into focus by the actions of Enron and others. There is a trade-off
between applying a high standard of ethics and increasing cash flow or maximisation of shareholder wealth. A company might
face ethical dilemmas with respect to the amount and accuracy of information it provides to its stakeholders. An ethical issue
attracting much attention is the possible payment of excessive remuneration to senior directors, including very large bonuses and
golden parachutes.
Should bribes be paid in order to facilitate the companys long-term aims? Are wages being paid in some countries below
subsistence levels? Should they be? Are working conditions of an acceptable standard? Do the companys activities involve
experiments on animals, genetic modifications etc? Should the company deal with or operate in countries that have a poor record
of human rights? What is the impact of the companys actions on pollution or other aspects of the local environment?

21

Environmental issues might have very direct effects on companies. If natural resources become depleted the company may not be
able to sustain its activities, weather and climatic factors can influence the achievement of corporate objectives through their impact
on crops, the availability of water etc. Extreme environmental disasters such as typhoons, floods, earthquakes, and volcanic
eruptions will also impact on companies cash flow, as will obvious environmental considerations such as the location of
mountains, deserts, or communications facilities. Should companies develop new technologies that will improve the environment,
such as cleaner petrol or alternative fuels? Such developments might not be the cheapest alternative.
Environmental legislation is a major influence in many countries. This includes limitations on where operations may be located
and in what form, and regulations regarding waste products, noise and physical pollutants.
All of these issues have received considerable publicity and attention in recent years. Environmental pressure groups are prominent
in many countries; companies are now producing social and environmental accounting reports, and/or corporate social
responsibility reports. Companies increasingly have multiple objectives that address some or all of these three issues. In the short
term non-financial, ethical and environmental issues might result in a reduction in shareholder wealth; in the longer term it is
argued that only companies that address these issues will succeed.

22

Part 3 Examination Paper 3.7

Strategic Financial Management

December 2003 Marking Scheme

This question requires analysis of the viability of an overseas investment taking into account all relevant financial and non-financial
effects, including possible blockage of remittances from the country.
Marks
Criteria for making the decision
1
Estimates of future exchange rates
3
Terranian cash flows:
Sales
Labour (including 300 workers) with reason
Local components
Fixed costs
German component
Capital allowances/tax saving
Taxation
Equipment plus realisable value
Working capital
Feasibility study sunk cost

1
23
1
1
1
3
1
1
2
1

UK cash flows:
Remittable
Additional tax
Discount rates UK and Terrania
NPV and conclusion

1
2
2
1

24

Reward technique even if calculation errors exist

Net cost of closure
Impact of downsizing
Comment on accuracy of cash flows especially reward comments
about what happens after year 4
Blocked remittances:
Calculations
Discussion
Other information/analysis that would be useful

1
3
45

Total

2
23
45

40

This question requires analysis and understanding of techniques that might be used to attempt to forecast corporate failure, how
to estimate free cash flow, and what actions should be taken, if any, as a result of information provided and calculated regarding
a companys financial health. Part (v) examines understanding of factors that might influence the expenditure of 100,000 on a
report, including the possible effect of market efficiency on this decision.
(a)

S1
S2
S3
S4
Overall score
Max

(b)

Reward sensible criticism roughly 1 mark per point

(c)

05 1 mark per point, depending on detail

(d)

Relevant calculations
Recommendations regarding actions

(e)

1
1
3
56
1

11
4

Max

Max

34
3-4

Total

30

Reward sensible discussion, especially if related to the

possible effect of the information on price, and to market
efficiency discussion

23

Marks
3

Validity of estimates of:

Turnover
Profits
Share price
Explanation of problems with forecasts
Allow for overlap between parts

Total

2
2
8
34

15

(a)

Type of hedge (sell futures)

Portfolio value
Weighted beta
Correct hedge

1
1
1
2

(b)

Outcome of hedge
Comment on findings

2
2

(c)

12 for each relevant point

Max

(d)

Reasoned explanation

Max
Total

15

Total

2
3
4
23
45

15

Max

12

Total

34

15

Correct Ps values
Estimates of N(d1) and N(d2)
Call values
Comment on call prices and their implications
Discussion of possible problems and conclusion

Examples of non-financial, ethical and environmental issues

Up to 4 for each
(Up to 5 for excellent answers)
Discussion of their importance
Give extra credit for good examples and/or citing relevant authors

24