Page 24 - AB INBEV MODEL ANSWER 1

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6.2 Valuation of embedded options (all figures in US$ million)

-Option to Expand/Call Option embedded

This strategic choice avails the option to expand
further into Nigeria and the Rest of Africa. It

represents therefore a 'right but not an obligation'

available to AB InBev valued here using the Black

Scholes Formula (BSF).

Value of the Project is 200,000 at Year 5. We discount this back to Year 0 to obtain the Present

Value, Pa = 200,000 * 0.621 = 124,200. The Black Scholes variables include:

Pa Pe t s r e^-rt
124,200 200,000 5 Years 0.25 0.05 0.779

d1 = [In(124,200/200,000) + (0.05 + 0.5 * 0.25^2) * 5] / (0.25 * V5
= {-0.4800 + 0.4100}/0.5590

= -0.1300
d2 = -0.1300 - 0.5590
= - 0.6800

N(d1) = 0.5 - 0.0517 = 0.4500
N(d2) = 0.5 - 0.2517 = 0.2500
Call (Option to Expand) = (124,200 * 0.4500) - (200,000m * 0.2500 * 0.779)

= 55,890 m - 38,950m
= 16,940 million (US$16.94 billion)

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