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.
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June 2011 - Q4 Mesmer Magic
11y ago#1They have used 35M because this is the amount they will need to invest if they delay.
and what 7+ 7 ? simply ignored?
11y ago#3If 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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