Use black scholes approach to value the option

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Reference no: EM131571243

Assume the following information. A golf course currently produces net cash inflows of $1m per year with a required return of 30%. The standard deviation of the golf course inflows is estimated at 30%. A developer has offered the golf course owner $14m which is open for the next year. The risk free rate is currently 3% pa. Use a Black Scholes approach to value the option. Explain the calculation.

Reference no: EM131571243

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