Use the two-state model to value the real option

Assignment Help Financial Management

Reference no: EM131617504

Gasworks, Inc., has been approached to sell up to 4.6 million gallons of gasoline in three months at a price of $3.70 per gallon. Gasoline is currently selling on the wholesale market at $3.40 per gallon and has a standard deviation of 63 percent.

If the risk-free rate is 5 percent per year, what is the value of this option? Use the two-state model to value the real option. (Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Value of contract $

Reference no: EM131617504

Questions Cloud

Equity capital as computed using dividend growth model : Which of the following formulas correctly describes the cost of equity capital as computed using the dividend growth model?

Calculate firm operating cycle and cash conversion cycle : Calculate the firm's operating cycle and cash conversion cycle. What is the dollar value of inventory held by the firm?

Measure the glass surface temperatures across the air gap : A vertical 0.9-m-high and 1.8-m-wide double-pane window consists of two sheets of glass separated by a 2.2-cm air gap at atmospheric pressure.

Discuss your understanding of crime scene integrity : Discuss your understanding of Crime Scene integrity and identify what you think are the top 3 priorities when processing a crime scene

Use the two-state model to value the real option : If the risk-free rate is 5 percent per year, what is the value of this option? Use the two-state model to value the real option.

The company should be willing to pay for the lease : Use the Black–Scholes model to determine the maximum amount that the company should be willing to pay for the lease.

What is the cost of equity using the dividend growth model : What is the cost of equity using the dividend growth model? What is the cost of preferred stock? What is the yield to maturity on the debt?

Intelligence led does it threat the rights of citizens : Intelligence Led policing definition, pros and cons, examples, And Does it threat the rights of citizens

Discuss which are the policies that most reduce crime : which one does not make that big of improvement and impact, why was that

User Account

All Pages