Hi friends
Has anyone of you done the calculation of real options in this technical article?
here is the link of the article
https://www.accaglobal.com/gb/en/student/exam-support-resources/professional-exams-study-resources/p4/technical-articles/international-project-appraisal—part-2.html
i am little confused on the real option calculation
its not given in the article please tell me am i right?
OPTION to abandon after 2 years= Put option
Pe=offer from Elders co $1,200million
Pa=value of the asset, Pv of cash flows forgone (319.01+191.13+684.41=1194.55million)
standard deviation= 30 percent
t= 2years
r=4.5%
N(d1)= -.022 =0.5-.0080=.492
N(d2)=.446=.5+.1736=.6763
call option= -570 (i have doubt on this value..what does negative value mean?)
put option=625$
NpV is 146.13 but put option is 625$ so the strategic value will be
625+146=771
project has positive NPV so if we abandon it after 2 years it still give us value of 625$ which is more than the NPV of 5 years.