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June 2011 – Q4 Mesmer Magic

This topic has 3 replies, 2 voices, and was last updated 10 years ago by John Moffat.

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November 16, 2014 at 4:32 pm #210467
muneebnawaz90
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In blackscholes calculation to find option to delay value. Exercise price is 35m used instead of 7+7+35=49
Why is it so?
In current price they have taken pv of positive cashflows thats fine.
November 16, 2014 at 5:16 pm #210495
John Moffat
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They have used 35M because this is the amount they will need to invest if they delay.
November 16, 2014 at 5:51 pm #210503
muneebnawaz90
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and what 7+ 7 ? simply ignored?
November 17, 2014 at 8:53 am #210614
John Moffat
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If you read the first paragraph of the question, then it is clear that they will be spending the 7 + 7 whatever happens.
What can be delayed is the decision as to whether or not to spend the 35M.
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