March/June 2019 – Sample Questions, Q1, Talam Co, real option avluation

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April 13, 2020 at 1:49 pm #567944
Agata
Participant
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Question to Jigu Project as a real option.
Why Asset value (Pa) = $46,100,000 .
It is 70k discounted 11%, but the value of cash flows will be 70k in 4 years time, why we are not bringing it to present and 70k/0,659 (the 11% disc. factor).
Thank you!!!
Best regards
April 13, 2020 at 2:57 pm #567984
John Moffat
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When we are discounting, we multiply by the discount factor – we do not divide by the discount factor!
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