|
Option model (See Chapter 35 of the Vernimmen)
An option model used for valuing a company is based on the asymmetry of rights of creditors and shareholders (see asymmetry - shareholder/creditor). The Shareholders' equity of a levered company can be seen as a call option, granted by creditors to shareholders, on the company's operating assets. The Strike price is the value of the Debt and its Maturity is the exercise date. Using this options-based approach, the value of equity can be Split into intrinsic value and Time value. Intrinsic value is the difference between the Present value of Capital employed and the Debt to be repaid upon Maturity. Time value is the hope that when the Debt matures, e nterprise value will have risen to exceed the amount of the Debt to be repaid.
Option model (See Chapter 35 of the Vernimmen)
An option model used for valuing a company is based on the asymmetry of rights of creditors and shareholders (see asymmetry - shareholder/creditor). The Shareholders' equity of a levered company can be seen as a call option, granted by creditors to shareholders, on the company's operating assets. The Strike price is the value of the Debt and its Maturity is the exercise date. Using this options-based approach, the value of equity can be Split into intrinsic value and Time value. Intrinsic value is the difference between the Present value of Capital employed and the Debt to be repaid upon Maturity. Time value is the hope that when the Debt matures, e nterprise value will have risen to exceed the amount of the Debt to be repaid.
See
all terms in the dictionary of finance
|
|
|
|
You get more than just a glossary
on www.vernimmen.com:
- A monthly newsletter with over 60,000
subscribers
- 610,000 financial data for over 16,000
groups
- A 279-question quiz with answers
- A text book that has
sold 130,000 copies
- And all the rest |
