FIN

402 - FORMULAS EXAM 3

In-the-money
S0 = C0 + PV(E)

or

= +

(*)

Out-of-the money
S0 =(S/C) C0 + PV (lowest S1)

or

Notation:
S1 = stock price at expiration
S0 = stock price today
C1 = value of call at expiration
C0 = call premium today
E = exercise price
S = the difference in the possible stock prices
C = the difference in option values at expiration
R = risk free interest rate

V = VAB (VA + VB)

VB* = V + VB
NPV = VB* cash cost
VAB = VA + (VB* - cash cost)
VAB = VA + VB + V
Notation:
V = Incremental value
VB* The value of Firm B to Firm A
VA = Firms A Value
VB = Firms B value
VAB = Combined value of firms A & B
NPV = Net present value of the merger

(*)