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June 2011 – Q4 Mesmer Magic

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › June 2011 – Q4 Mesmer Magic

  • This topic has 3 replies, 2 voices, and was last updated 10 years ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
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  • November 16, 2014 at 4:32 pm #210467
    muneebnawaz90
    Member
    • Topics: 10
    • Replies: 76
    • ☆☆

    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
    Keymaster
    • Topics: 57
    • Replies: 54709
    • ☆☆☆☆☆

    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
    Member
    • Topics: 10
    • Replies: 76
    • ☆☆

    and what 7+ 7 ? simply ignored?

    November 17, 2014 at 8:53 am #210614
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54709
    • ☆☆☆☆☆

    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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