Calculate the value of the abandonment option

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Reference no: EM133120725

Calculate the value of the abandonment option embedded in the Bridge round of funding by taking the following steps:

a. Use the decision tree framework to map the capitalization table to potential outcomes for Fast Ion Battery. Assume the start-up gets the projected pre-money valuation and investment amounts if it continues to raise capital and zero if it fails. What are the implied probabilities that it will achieve each round of funding?

b. Use these probabilities to generate the expected value of two decision trees: One where investors out in $5 million at the first state and $25 million if the Bridge round is successful, and a second where they out in the full $30 million in all-or-nothing bet. Ine ach case, use $175 million as the value if successful (pre-money of Series C) and assume the start-up is worth zero if it fails.c. Given these assumptions, what is the value of the option to abandon the investment if Fast Ion continues to falter after the Bridge round of funding runs out?

Reference no: EM133120725

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