[akhtar1988]

Thanks to Allaha & our beloved Prophet (PBUP)…..Finally My ACCA is over…..passed P4-53
& P6-53… Now became the ACCA member…..Huray………its time of enjoy………Thanks to OT for your support…….I m out of the blue….

[akhtar1988]

Thanks to Allaha & our beloved Prophet (PBUP)…..Finally My ACCA is over…..passed P4-53
& P6-53… Now became the ACCA member…..Huray………its time of enjoy………Thanks to OT for your support…….

[akhtar1988]

Like in jun-2011 question # 3, how current share price(Pa) & exercise price(Pe) has been calculated .
same how we will decide current share price & exercise price in OPTION TO DELAY,OPTION TO EXPAND,OPTION TO ABANDON.

Pls clear my doubt…

JUN-11
3 – MesmerMagic Co (MMC) is considering whether to undertake the development of a new computer game based on
an adventure film due to be released in 22 months. It is expected that the game will be available to buy two months
after the film’s release, by which time it will be possible to judge the popularity of the film with a high degree of
certainty. However, at present, there is considerable uncertainty about whether the film, and therefore the game, is
likely to be successful. Although MMC would pay for the exclusive rights to develop and sell the game now, the
directors are of the opinion that they should delay the decision to produce and market the game until the film has
been released and the game is available for sale.

MMC hasforecast the following end of year cash flows for the four-year sales period of the game.

Year 1 2 3 4
Cash flows ($ million) 25 18 10 5

MMC will spend $7 million at the start of each of the next two years to develop the game, the gaming platform, and
to pay for the exclusive rights to develop and sell the game. Following this, the company will require $35 million for
production, distribution and marketing costs at the start of the four-year sales period of the game.
It can be assumed that all the costs and revenues include inflation. The relevant cost of capital for this project is 11%
and the risk free rate is 3·5%. MMC has estimated the likely volatility of the cash flows at a standard deviation of
30%.

Required:
Estimate the financial impact of the directors’ decision to delay the production and marketing of the game.
The Black-Scholes Option Pricing model may be used, where appropriate. All relevant calculations should be
shown.?

[akhtar1988]

Hi guys,

I want to join the group. Pls contact me at akhtarhossain20@gmail.com

[akhtar1988]

Hi guys,

I also do want to join the group. Email me at (akhtarhossain20@gmail.com)

[akhtar1988]

Hi,
I do have…. I am in UAE. Contact me in my email id – akhtarhossain20@gmail.com

[akhtar1988]

Hi,

I m going for P6(UK) in Dec-13.

[Author]

Posts