How much should you charge for option

Assignment Help Financial Management

Reference no: EM131914983

Assume that you have the rights to a coal mine and the most recent valuation of the mine was £6.6 million. Because of increasing demand from Asia, the price of similar mines has grown by 15 per cent per annum, with an annual standard deviation of 25 per cent. A buyer has recently approached you and wants an option to buy the mine in the next 12 months for £6.9 million. The risk-free rate of interest is 5 per cent per year, compounded continuously.

Required:

How much should you charge for the option?

Reference no: EM131914983

Questions Cloud

What is the debt to equity ratio of marriott international : What is the Debt to Equity Ratio of Marriott International, Inc. (NMS: MAR) in the year:

What will operating cash flow : What will the operating cash flow be if output rises to 16,400 units?

Calculate best-case and worst-case npv figures : Calculate the best-case and worst-case NPV figures.

What is the project net present value in today dollars : What is the project’s net present value in today’s dollars, if the firm waits two years before deciding whether to drill?

How much should you charge for option : Assume that you have the rights to a coal mine and the most recent valuation of the mine was £6.6 million. How much should you charge for the option?

Estimate the weights of capital for the company : Estimate the weights of capital (debt, preferred stock, and common stock) for the company.

Conducting capital budgeting analysis of project : Which of the following is one of the steps necessary for conducting a capital budgeting analysis of a project?

The annual operating cash flow for this project : The applicable tax rate is 40 percent. The annual operating cash flow for this project is $___.

Most appropriate one for evaluating projects : Which of the following capital budgeting techniques is the most appropriate one for evaluating projects?

User Account

All Pages