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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Real Options Pa and Pe values
Please tell me whether my understanding is correct regarding Pa and Pe
1-Abandon(Put option) option Pa is the value which will be lost by selling the project earlier and Pe is the value we received by selling.
2-Delay option(Call option)
Pa is the p.v of the project
Pe is the capital expenditure that can delayed.
3-Expansion option.
Pe is the amount of cost needed for expansion. It
but what is the Pa in expansion? and expansion is like call option?
Please mention any error i made in 1 and 2 and explain 3.
1 and 2 are correct.
For 3 , Pa is the PV of the additional flows due to the expansion