Corporate Finance
240 Corporate Finance Options traded on ACC stock, March 20, 2003 (Rs per share) Stock price Rs 139 Exercise price Rs 135 Matu ...
A Real Option’s Perspective of Capital Budgeting 241 The option is worthless as long as the strike price exceeds the exercise ...
242 Corporate Finance Payoff Price of the underlying asset Like call options, the payoff for the put option holder and writer ...
A Real Option’s Perspective of Capital Budgeting 243 in the asset price. The opposite is true for a put option: the higher the ...
244 Corporate Finance Cash Distributions (Dividend) A cash dividend paid on the stock decreases the stock price because of whi ...
A Real Option’s Perspective of Capital Budgeting 245 As an assignment test whether the put–call parity held for the ACC stock ...
246 Corporate Finance Note that the value of the option is more than its intrinsic value (50 – 40 = 10) because of time value. ...
A Real Option’s Perspective of Capital Budgeting 247 It does not, for example, consider why managers cannot wait and then inve ...
248 Corporate Finance Success Success Success Start Failure Failure Failure So, it would be incorrect to value Amazon.com on t ...
A Real Option’s Perspective of Capital Budgeting 249 investment is Rs 97.1 lac, the NPV is Rs 3 lac. Based on the NPV, most ma ...
250 Corporate Finance There are six categories of real options: Timing option, Growth option, Abandonment option, Option to e ...
A Real Option’s Perspective of Capital Budgeting 251 can be deferred for 1 year, one could put the investment in a bank for 1 ...
252 Corporate Finance Just as a package of bond and warrants are valued separately, the option component embedded in projects ...
A Real Option’s Perspective of Capital Budgeting 253 The development of an oil field consists of sequential investments in tes ...
254 Corporate Finance IN CONCLUSION Corporate investments are like options. The DCF methodology invariably breaks down while e ...
A Real Option’s Perspective of Capital Budgeting 255 Mason, Scott and Robert C Merton (1985). ‘The Role of Contingent Claims A ...
256 Corporate Finance If plant construction is delayed, construction costs are expected to increase 10 percent per annum. Sale ...
A Follow-up Note on Capital Budgeting 257 Chapter 13 13. A Follow-up Note on Capital Budgeting OBJECTIVES Potential pitfalls ...
258 Corporate Finance which is their opportunity cost (the return they can earn on comparable investments). Theoretically it i ...
A Follow-up Note on Capital Budgeting 259 purpose the company is trying to achieve. A firm can be viewed as a portfolio of pro ...
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