What is value of the option to wait

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Question - You are a financial analyst at Uni Conglomerate and considering entering the footwear business. You believe that you have a very narrow window for entering this market. Because of Christmas? demand, the time is right today and you believe that exactly two years from now would also be a good opportunity. Other than these two? windows, you do not think another opportunity will exist to break into this business. It will cost you $35.0 million to enter the market. Because other shoe manufacturers exist and are public? companies, you can construct a perfectly comparable company.? Hence, you have decided to use the? Black-Scholes formula to decide when and if you should enter the shoe business. Your analysis implies that the current value of an operating shoe company is $40.0 million.

?However, the flow of customers is? uncertain, so the value of the company is? volatile-your analysis indicates that the volatility is 20% per year. Fifteen percent of the value of the company is attributable to the value of the free cash flows? (cash available to you to spend how you? wish) expected in the first two years. If the? one-year risk-free rate of interest is 4.0%?.

What is value of the option to wait?

Should they wait or open immediately?

Reference no: EM133177340

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