Scribd
Upload
108 views3 pages

Abandonment Option Valuation Worksheet

This document calculates the value of an option to abandon a project that has a present value of cash flows of $254, a standard deviation of returns of 30%, a remaining life of 25 years, and an abandonment value of $150. The option to abandon can be exercised within the next 10 years. Given a riskless rate of 7%, the value of the abandonment option is calculated to be $10.56.

Uploaded by

Pro Resources
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLS, PDF, TXT or read online on Scribd
108 views3 pages

Abandonment Option Valuation Worksheet

This document calculates the value of an option to abandon a project that has a present value of cash flows of $254, a standard deviation of returns of 30%, a remaining life of 25 years, and an abandonment value of $150. The option to abandon can be exercised within the next 10 years. Given a riskless rate of 7%, the value of the abandonment option is calculated to be $10.56.

Uploaded by

Pro Resources
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLS, PDF, TXT or read online on Scribd

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 proje 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 = 1.3457588803
N(d1) = 0.9108098547

d2 = 0.3970755822

N(d2) = 0.6543441373

Value of Option to Abandon = $10.56


OPTION WORKSHEET: LONG TERM OPTIONS

onment costs)

You might also like