Number #2 question
Chrome - Mail - Collier, Chelsea - Outlook O X outlook.office365.com/mail/deeplink Excel Week 3 template-1.xis Edit and reply _ Download Show email Excel Week 3 template-1 Lead Print G Data Find Comments A B C D E F G H K L M N P Q R 1 JTM Airlines 2 Rates: 3 Discount rate 13.0% 4 Risk-free rate 8.0% 1 0 UT Scenario: No Real Options 2 3 4 5 8 9 10 11 12 13 14 15 Cash from Operations 4.2 11.9 12.9 9.4 8.1 8.0 9.8 12.8 15.9 15.2 14.9 14.6 15.5 16.6 15.2 8 minus: Capital Expenditures_ 17.5 17.7 5.3 4.1 3.5 1.3 0.1 0.3 0.1 8.1 (0.1) 0.2 0.1 9 = Net Cash Flow 10 Terminal Value 67.8 11 PV of NCF 12 Scenario: Real Options Option Pricing: 13 2 3 4 15 6 8 10 11 12 13 14 15 PV of Cap. Ex. (Yrs. 1-2) 14 Cash from Operations 4.2 11.9 12.9 94 8.1 8.0 9.8 12.8 15.9 15.2 14.9 14.6 15.5 16.6 15.2 Maturity 3.0 15 minus: Capital Expenditures 5.3 4.1 3.5 13 0.1 0.3 0.1 8.1 (0.1) 02 0.1 PV of NCF 16 = Net Cash Flow Risk free rate 17 Terminal Value 67.8 Volatility 10 18 PV of NCF BS calculations: 19 PV of Cap. Ex. (Yrs. 1-2) di #DIV/O 20 N(d1) #DIV/O 21 d2 #DIV/0 22 N(d2) #DIV/O Drina of call Prob. 1 Prob. 2 Prob. 3 Help Improve Office O 9 5:01 acer3.1 - Problem Set X G JTM Airlines, where you work, is x C A) JTM Airlines, Where You Wor x *Homework Help- 1/courses/105115/assignments/1892933?module_item_id=5873554 Tong term growth rates Of 3%%, 3.5%%, and 4% along the horizontal Note that your manager wants the dollar price per share, so you must calculate the dollar value of the equity and then divide by the number of shares outstanding. Problem 2 - Real Options A) JTM Airlines, where you work, is looking at potentially buying more gates at their home airport. If it pays the airport $1M, JTM will hold exclusive rights to buy those gates for $17.5M (at the start) and $17.7M (one year later) at any time in the next 3 years. The option expires at the end of year 3. JTM's discount rate is 13%. What is the NPV of the gate purchases if it bought them today? Use the data in the template above. B) After you run the numbers for part A, you remember back to your ERAU corporate finance class's coverage of real options. You know that the 3-year option has value so you decide to calculate it by: 1. present valuing the purchase price of the gates separately using the risk-free rate. Once JTM decides to go ahead with the purchase, there is no risk to that expenditure 2. present valuing the Net Cash Flow excluding those purchase prices. This calculation will include Cap. Ex. for years 3-15 as they are part of the normal operation of the gates and are unrelated to the purchase price 3. using the Black-Scholes Option Pricing formula to come up with option's price assuming a 3-year maturity and a 10% price volatility for gate prices 4. you compare the price of the call option as calculated using the BSO formula with the NPV in the No Real Options scenario. With this, you can decide whether or not the $1M option is worth it or not. Is it? Problem 3 - Decision Tree JTM really liked your work on the option pricing of the gates, so they ask you to look at their 3-phase expansion at their home airport. The three phases are: ina progra acer
