Calculate the value of an real option value of an oil producing company which has the target of a takeover at $70 per share. It had present value of estimated reserves of 3038 million barrels of oil is $52millionand the estimated development cost of reserves$50 million. The average relinquishment lifeof the reserves is 12 years. The bond rate (i.e. risk free rate) at the time of the analysis was 9.00%. The variance in oil prices is 0.03.Apply BSOPM to value the company considering the nature as real option.

Calculate the value of an real option value of an oil producing company which has the target of a takeover at $70 per share. It had present value of estimated reserves of 3038 million barrels of oil is $52millionand the estimated development cost of reserves$50 million. The average relinquishment lifeof the reserves is 12 years. The bond rate (i.e. risk free rate) at the time of the analysis was 9.00%. The variance in oil prices is 0.03.Apply BSOPM to value the company considering the nature as real option.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 23P

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