1:43 So essentially me trying to program my valuation tools and learning how to do intrinsic valuation the right way is an option to expand. It's gonna lose me money for now. The longer I take the worse it gets if I actually work on it and don't make it. Once I pass a certain threshhold it's gonna make me money. And if I work on this and need to pivot mid way I got the foundation to do that quicker.
Great example. Would it be possible to have one applying this to M&A? Acquirer buy targets for NPV + OV (option to expand as the target has a new product coming online soon) + Abandonment Value (acquirer can recoup part of the investment by selling the acquired company). It is not clear to me how to calibrate the options & the timing (5 years? 3 years?...) and what it means for the NPV. Thanks
In the Lear aircraft example,, the final answer with the option to abandon seems to suggest that there is a positive NPV, but there is no value creation due to the option to abandon. It is just an insurance. So how is that contributing to positive NPV, because here unlike actual put option u cant go into the market and square off against an actual security to derive the gains out of the put option.
Guarana pronunciations is great. Love seeing examples from Brasil!
1:43 So essentially me trying to program my valuation tools and learning how to do intrinsic valuation the right way is an option to expand. It's gonna lose me money for now. The longer I take the worse it gets if I actually work on it and don't make it. Once I pass a certain threshhold it's gonna make me money. And if I work on this and need to pivot mid way I got the foundation to do that quicker.
Thanks for the free lecture and clear English
Great example. Would it be possible to have one applying this to M&A? Acquirer buy targets for NPV + OV (option to expand as the target has a new product coming online soon) + Abandonment Value (acquirer can recoup part of the investment by selling the acquired company). It is not clear to me how to calibrate the options & the timing (5 years? 3 years?...) and what it means for the NPV. Thanks
really useful thankssss
In the Lear aircraft example,, the final answer with the option to abandon seems to suggest that there is a positive NPV, but there is no value creation due to the option to abandon. It is just an insurance. So how is that contributing to positive NPV, because here unlike actual put option u cant go into the market and square off against an actual security to derive the gains out of the put option.
There is no actual cash contribution. Just as you rightly mentioned it value is in being able to reduce the potential downside risks.
Your pronunce from "guaraná" is correct lol
Thank you for this. What is the risk-free rate for the expansion option?
rate of T-Bill...
How he got to 234 million? I dont get it
Using the Black & Scholes option pricing model
I applied the black Scholes option pricing model and assuming dividend yield of 0%, to get the call price of $234 the derived risk free rate is 6.5%!