Problem1 A florist wants to retire and has the choice of selling the business immediately or at the

Problem1 A florist wants to retire and has the choice of selling the business immediately or at the end t year. The buyer is not interested in waiting longer than a vear, The expected net cash hows but current year is $600,000 and starting next vear is estimated to be $500,000 per year (forever. ben they may be higher by 25% or lower by 20%. The hurdle return for the florist is 12%. The risk hee rate is 5%. The business can be sold immediately for $4.8 million or in a year for $5.0 million. 20 points S ponio 1. How much is the value of the florist business without the abandonment consideration? Complete the input information for pricing the abandonment option. 7 points 3 points for market price, 1 point each for rest. 2. Put Option Call Option Market price (S) Strike price (K) Time in years Percent Up Interest rate $0.566 million $0.280 million Option Price 3. How is the business worth to the florist if he is willing to wait a year to sell? 5 points 4. Which do you recommend, sell the business immediately or operate the business for a year and then sell it? 3 points Rev 12-17-19 VERSION #2

 

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