Option Pricing Model in Valuing a Company in the Context of Pfizer Dissertation

Option Pricing Model in Valuing a Company in the Context of Pfizer - Dissertation Example His constant guidance and positive attention helped researcher to concentrate more on the research topic. The researcher would also like to thank his other professors for acting as a support system when required along with helping and guiding when needed and required. The support and cooperation of the University in allowing access to the library helped in referring to different study materials that further help in understanding the research topic in a sound manner. The researcher would also like to thank his family for being there as a strong support system often guiding and supporting along with enhancing the level of motivation and excitement through kind and positive feedback. The researcher feels blessed to have friends who not only shared their views and opinions on the research topic bust also brainstormed to add more value to the research topic. Overall, the researcher would like to acknowledge the efforts and support of everyone playing an important role in the entire resear ch process. Without the support and cooperation of above mentioned people, the research would have been an aimless journey lacking depth and understanding. The researcher expresses his deep gratitude for all the support and guidance along with being thankful to everyone for being so kind and supportive throughout the research journey. TABLE OF CONTENTS Chapter 1.Introduction 4 1.1 Introduction to the Research Topic 4 1.2 Research Aims and Objectives/ Questions 5 1.3 Scope of the Research 6 1.4 Rationale for the Research Topic 7 1.5 Limitations of the Research 8 1.6 Methodology 9 1.7 An Overview of Pfizer 10 1.8 Summary 11 Chapter2.0 Literature Review 12 2.1 Introduction 12 2.2 An Overview of Options 12 2.3 Types of Options 14 2.4 Factors Affecting Options 16 2.5 Application of Option Pricing Model 18 2.6 Option Pricing Model in Real World 19 2.7 Option Pricing Model and Historical Data 20 2.8: Summary 21 Section 3.0 Research Methodology 22 3.1 Introduction 22 3.2 Research Philosophy 22 3.3 Research Approach 23 3.4 Data Collection Methods 23 3.5 Data Analysis Methods 24 3.6 Ethical Considerations 24 3.7. Strengths of the Methodology 25 3.8: Limitations of the Methodology 25 Chapter 4.0 Findings and Analysis 26 4.1 Introduction 26 4.2 Value based Management 26 4.3: Economic Value Added 28 4.4: Market Value Added 29 4.5: Option Pricing Models 30 4.6: General Findings 32 4.7: Summary 34 Chapter 5.0 Conclusion and Recommendations 35 5.1 Introduction 35 5.2 Conclusion 35 5.3: Recommendations for Future Research 36 5.4: Recommendations for Pfizer 36 5.5: Reflection 37 5.6 Summary 37 BIBLIOGRAPHY 38 CHAPTER-1.0: INTRODUCTION 1.1: Introduction to the Research Topic Business environments have always been unpredictable and hard to understand and therefore, it becomes important to understand the intricacies of business environments and financial concepts that will help in understanding the growth and development of organsiations. In finance, the time value of assets and o rgansiations is calculated through the analysis of intrinsic and extrinsic values that vary in a great manner (Aswath, 2008). In finance, the concept of â€Å"Option† is defined as a derivative financial instrument specifying a contract between two parties for a future transaction revolving around an asset at a reference price (Aswath, 2008) In today’s time, the concept of option pricing has emerged as a safeguarding tool for a number of organsiations willing to

Finance Essay Example | Topics and Well Written Essays - 1500 words

Finance - Essay Example Moreover, an increase in EPS is also increasing dividend paid to NEXT plc shareholders, thus satisfying more the shareholders. This increase in EPS is also tested for quality based on the information from cash flows. Increase in EPS is strengthening positive operating cash flows; as increase in EPS is sometimes shown only on income statement and cash flow statement provides real picture with negative cash flows for operations (Next Plc, 2012).. This increase in EPS in line directors stated objective to provide sustainable long term growth in EPS. For this purpose, NEXT has adopted two strategies; one to increase the sales of the company by increasing the product quality and new stores along with increased cost control. The second strategy is buying back of outstanding shares. Buy backed shares reduces the number of shares outstanding in the market and hence, allows greater proportion of net income to individual share, thus it will lead to same earnings with less outstanding shares, t herefore lower EPS. EPS increase also puts positive impact in share price (though not always) and has also benefitted NEXT plc. CORPORATE BONDS FROM BALANCE SHEET For year 2012 NEXT plc has increased corporate bonds liability amounting to 652.1 million as compare to 471.2 million in year 2011. In the current year firm has issued 10 year 325m bond. Increase in corporate bonds has increased interest expense to 28m (Next Plc, 2012). Increase corporate bonds indicate that firm is extending its debt source of financing as against equity financing to take tax benefit. Equity financing is the most expensive source of financing; therefore, firms are more inclined to debt financing that is relatively cheaper as per Pecking theory (Zhao, Katchova, and Barry, 2004). Moreover, increase in debt facilitates firms firm with cash flows without giving any rights of decision making. Since in difficult economic situation firms have to make tough decisions therefore, management is interested to maintai n decision making more in their own hands. In addition to this, increase in debt gives the opportunity to firms to take advantage of the leverage concept which in return increases its Return on Equity (ROE) (Booth, Aivazian, Demirgue-Kunt and Maksimovic, 2001). This makes the firm more attractive for investors against competitors and it gives a positive signal to the investors according to Signal Theory. Benefit of this strategy has started to be reflecting as NEXT plc share has been ranked as the second best performing firms on FTSE-100 companies and has led its earnings per share increased by compound rate of 18 percent. NEXT Plc has been increasing its debt source of financing to facilitate two objectives; first, to tender cash flows for operations and capital investment. And second to gain the sustainable long term growth in EPS. To continue growth strategy in terms of location, product and sales firm and also EPS, NEXT plc has planned to increase the debt further and has also i ncreased its bank facility by 300 million for 5 years. Moreover, NEXT plc has planned to increase debt max by 700m in order to support the share buyback strategy. REPURCHASE OF OWN SHARES FROM STATEMENT OF CASH FLOWS NEXT plc has been following to continue share buy back from on market and off market. In year 2012 firm conducted in investment activity of buying back its own shares