Cittic tower ii solution

Brushing up HBR fundamentals will provide a strong base for investigative reading.

Cittic tower ii solution

The following alternatives can be used to address the problem: It is a standard method for using the time value of money to appraise long-term projects.

The method is used for capital budgeting, and widely throughout economics, it measures the excess or shortfall of cash flows, in present value terms, once financing charges are met.

The buyer of a call option gets the right to buy the underlying the underlying asset at affixed price, where as the buyer of a put option obtains the right to sell the underlying asset at a fixed price. Alternatives to the binomial model In the binomial option pricing model, the underlying asset and risk free lending or borrowing are combined to create a portfolio that had the same cash flows as the option being valued; we called this portfolio the replicating portfolio.

We will write a custom essay sample on Cittic Tower II Solution Order now Although the binomial model provides the intuitive feel for the determinants of the option value, it requires a large number of inputs in terms of expected future prices at each node. As we can make time periods shorter in the binomial model, we can make assumptions about asset prices.

We can assume that price changes becomes smaller as time periods approaches zero leading to continuous price process. When the price process is continuous, that is price changes become smaller as time period gets shorter, the binomial model for pricing options converges on the Black — Scholes model.

STEP 1: Reading Up Harvard Case Study Method Guide:

The model allows us to estimate the value of any option using a small number of inputs, and it has shown to be remarkably robust in valuing many listed options. The original formula for calculating the theoretical option price OP is as follows: See below for how to estimate volatility.

This means that the price of the security can change dramatically over a short time period in either direction. The development of Citic tower represented an impressive achievement in development management.

CITIC Tower II Case Solution and Analysis, HBS Case Study Solution & Harvard Case Analysis

Indespite the property market being affected by the post-Asian financial crisis, weak demand and falling prices, Citic tower still maintained a relatively high occupancy rate. The present issue that Larry Yung, Chairman of Citic Pacific Limited is facing is regarding the impressive Victoria harbour and an undeveloped prime waterfront site, which he planned to call as Citic Tower II.

Larry thought CPL could acquire the site and develop it into another grade A office building in central. On going through the feasibility report, Larry found to his disappointment that investing in Citic tower II did not seem to bring about clear positive returns. Larry intuitively felt that the decision was too deterministic, as it did not allow for any flexibility, managerial discretion or strategic actions.

The option to purchase the land would allow CPL to defer the decision to develop for one year. It also involves some risks. If the project was truly a winner, waiting would mean a loss or deferral of its early cash flows. However, since the project did not appear to be clearly attractive at this point, waiting could prevent a big mistake.

CPL was hoping that the seller would grant CPL an option to defer purchase on the land, exercisable at the end of one year, thereby allowing CPL to defer the whole project for one year.

With the talks, the seller had shown an interest in granting an exclusive option for 12 months. Due to the extremely rigid assumptions the decision was too deterministic, as it did not allow for any flexibility, managerial discretions or strategic actions.

CITIC TOWER II CASE solution. Introduction. With the substantial ownership of 19%of Larry Yung Chi in the CITIC Pacific Limited whose shares are listed on the Hong Kong Stock Exchange in , the chairman’s prime concern was the adoption of the best alternatives in order to satisfy the customers as well the other shareholders. Combining all together, the business is an excellent reflection. CITIC Tower II Case Solution, CITIC Tower II Case Solution The third alternative among the three scenarios indicates the 25% of net profit margin at the tax rate of 20%, whi. Custom CITIC Tower II Harvard Business (HBR) Case Study Analysis & Solution for $ Finance & Accounting case study assignment help, analysis, solution,& example.

So there is a need to go for more exhaustive analysis taking all the factors into consideration and taking into account different types of analysis like discounted flow analysis. When the market is very volatile, the mark of a successful project was when the developer knew when to pull in the reins and when to let them out.

With taking this into consideration it is quite possible that the outlook for the project could change if it could be deferred or otherwise rescaled.

CITIC Tower II: The Real Option [10 Steps] Case Study Analysis & Solution

With a negative cash value, launching the project at that point of time was unambiguously sub-optimal. However there is a possibility that things could change over time. The property market could be on the upturn again.

Cittic tower ii solution

But while implementing this strategy, some additional costs have to taken care of. In this case the seller did show an interest in granting an exclusive option for 12 months. The analysis is done with the help of Black-Scholes model which is generally used for calculating the value of options. The various inputs required for the model are the value of the underlying asset, the variance in that value, the time to expiration on the option, the strike price, the riskless rate, and the equivalent of the dividend yield.

Let us first determine each input required for applying the Black-Scholes model for the current model. Hence we can take this as the current estimated value of the project.

Citic Tower Ii: The Real Option Case Study Solution

The investments that are to be made in the different years, in case we have made a decision to invest in the project are given in exhibit 1. The investment spans across a period of three years.

Hence, when determining the strike price of the project, the appropriate value can be obtained by calculating the present value of all the investments to be made for the project.

Cittic tower ii solution

The value of d1 can be calculated using the formula specified in the beginning in the background knowledge required. This requires inputs which we have already calculated.

After calculating all the required values, we just need to substitute all values in the Black-Scholes model to get the final value of the project. This value means that the management has taken a good decision by taking the option of considering the investments in the project.Restaurant is an eating place where meals and drinks are sold and served to customers.

It is also refers to any wide variety of establishment in which people may buy and prepared meals. A restaurant may be manage by a restaurateur, who is the owner or either the manager of the restaurant. The. CITIC Tower II: The Real Option Case Solution,CITIC Tower II: The Real Option Case Analysis, CITIC Tower II: The Real Option Case Study Solution, Citic Pacific Ltd (CPL) had to decide whether to buy the newly reclaimed land on the waterfront of Victoria Harbour, Hong Kong, as well as to develop a cla.

Cittic Tower Ii Solution Essay EXECUTIVE SUMMARY: The company should decide whether to go ahead with the Citic Tower II project or not.

The following alternatives can be used to address the problem: NPV: Net present value (NPV) is defined as the total present value (PV) of a time series of cash flows. It is a standard method for using the. Cittic Tower II Solution Essay.

The company should decide whether to go ahead with the Citic Tower II project or not - Cittic Tower II Solution Essay introduction. The following alternatives can be used to address the problem: NPV: Net present value (NPV) is defined as the total present value (PV) of a time series of cash flows.

Cittic Tower Ii Solution. Words Feb 25th, 8 Pages. EXECUTIVE SUMMARY: The company should decide whether to go ahead with the Citic Tower II project or not.

The following alternatives can be used to address the problem: NPV: Net present value (NPV) is defined as the total present value (PV) of a time series of cash flows.

It is a. CITIC TOWER II CASE Case Solution,CITIC TOWER II CASE Case Analysis, CITIC TOWER II CASE Case Study Solution, CITIC TOWER II CASE solution Introduction With the substantial ownership of 19%of Larry Yung Chi in the CITIC Pacific Limited whose shares are listed on th.

Citic Tower Ii: The Real Option Case Study Solution