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Hi there
I am studying AFM using BPP workbook.
It has an example of valuing a Put option using black scholes formula.
Unlike valuation of a call option for Pa it is getting the PV of the estimated net cash flows after exercise of the option as the cost of the project plus the NPV. Should this not be the NPV less the cost for the net cash inflows?
Thank you
ElizaIt is a little difficult for me to answer without seeing the whole question (and I do not have the BPP Workbook, only the Revision Kit).
However, the NPV is as always equal to the PV of the future flows minus the initial cost.
So as a result, the PV of the future flows is always equal to the NPV plus the initial cost.
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