- 15 Marks
FM – Nov 2017 – L3 – Q6 – Ethical Issues in Financial Management
Explore ethical considerations in capital investment and apply the Black-Scholes model in company valuation.
Question
You have recently taken up employment with Large Plc., a Nigerian company with manufacturing subsidiaries in many countries across Africa. As the Financial Analyst, you report directly to the Managing Director who currently requires briefings on the following areas:
(i) Ethical issues and capital investment decisions,
(ii) Options and company valuation
Required:
a. Explain, with examples, ethical issues that might affect capital investment decisions and discuss the importance of such issues for Strategic Financial Management. (8 Marks)
b. Explain the circumstances in which the Black-Scholes Option Pricing (BSOP) model could be used to assess the value of a company, including the data required for the variables used in the model. (7 Marks)
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