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7.2 Valuation of embedded options (all figures in S$ million)

Strategy 1 -

Stay the course but ramp-up to 51% -Option to Expand/Call Option embedded

This strategic choice avails the option to expand

further into Middle Eastern countries. It represents

therefore a 'right but not an obligation' available to

MCOM 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 (1/01/2016) to obtain
the Present Value, Pa = 200,000 * 0.567 = 113,400. The Black Scholes variables include:

Pa Pe t s r e^-rt
113,400 200,000 5 Years 0.25 0.05 0.779

d1 = [In(113,400/200,000) + (0.05 + 0.5 * 0.25^2) * 5] / (0.25 * V5

= {-0.5674 + 0.40625}/0.5590
= -0.2880
d2 = -0.288 - 0.5590

= - 0.8470
N(d1) = 0.5 - 0.1141 = 0.3859

N(d2) = 0.5 - 0.3023 = 0.1977
Call (Option to Expand) = (113,400m * 0.3859) - (200,000m * 0.1977 * 0.779)
= 43,761m - 30,802m

= 12,959

51% MCOM share = 6909

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