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  • Valuing An Option To Abandon A Project: Inputs Relating The Underlying Asset

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    This document provides a worksheet to calculate the value of an option to abandon a project. It requires inputs about the present value of cash flows from continuing the project, the annualized standard deviation of cash flows, the project life remaining, the abandonment value net of costs, and the number of years the abandonment option can be exercised. Given these inputs, it uses the Black-Scholes model to calculate values for d1, d2, N(d1) and N(d2) and determines the value of the abandonment option is $10.56.

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    This document provides a worksheet to calculate the value of an option to abandon a project. It requires inputs about the present value of cash flows from continuing the project, the annualized standard deviation of cash flows, the project life remaining, the abandonment value net of costs, and the number of years the abandonment option can be exercised. Given these inputs, it uses the Black-Scholes model to calculate values for d1, d2, N(d1) and N(d2) and determines the value of the abandonment option is $10.56.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as XLS, PDF, TXT or read online from Scribd
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    Download as xls, pdf, or txt
    25 views4 pages

    Valuing An Option To Abandon A Project: Inputs Relating The Underlying Asset

    Uploaded by

    api-3763138
    This document provides a worksheet to calculate the value of an option to abandon a project. It requires inputs about the present value of cash flows from continuing the project, the annualized standard deviation of cash flows, the project life remaining, the abandonment value net of costs, and the number of years the abandonment option can be exercised. Given these inputs, it uses the Black-Scholes model to calculate values for d1, d2, N(d1) and N(d2) and determines the value of the abandonment option is $10.56.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as XLS, PDF, TXT or read online from Scribd
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    Download as xls, pdf, or txt
    of 4

    OPTION WORKSHEET: LONG TERM OPTIONS

    VALUING AN OPTION TO ABANDON A PROJECT


    This program calculates the value of an abandonment option.
    Inputs relating the underlying asset
    Enter the present value of cash flows from continuing project = $254.00 (in currency)
    Entet the annualized standard deviation in ln(present value of CF) 30.00% (in %)
    Enter the remaining life of the project = 25 (in years)
    Enter the value received on abandonment = $150.00 (in currency) (Net out any abandonment costs)
    Enter the number of years that you have rights to abandon project 10 (in years) (< or = project life)

    General Inputs
    Enter the riskless rate that corresponds to the option lifetime = 7.00% (in %)

    VALUING A LONG TERM OPTION/WARRANT


    Stock Price= $254.00 T.Bond rate= 7.00%
    Strike Price= $150.00 Variance= 0.09
    Expiration (in years) = 10 Annualized dividend yield= 4.00%
    OPTION WORKSHEET: LONG TERM OPTIONS

    d1 = 1.35
    N(d1) = 0.91

    d2 = 0.4
    N(d2) = 0.65

    Value of Option to Abandon = $10.56


    OPTION WORKSHEET: LONG TERM OPTIONS

    onment costs)
    OPTION WORKSHEET: LONG TERM OPTIONS

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