Use the data in the case and the Black Scholes option pricing model to estimate the market value of the warrants Hasting issued to L1 Capital. Assume annualised volatility of 50%, What are the limitations with using the Black Scholes option pricing model to value the warrants?

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Equity financing for Yangibana In the absence of any final decision on the debt financing package with financiers, and without an established cash flow stream, Hastings has been reliant on raising equity finance from shareholders to further develop the project. In early April 2022, the company placed 160 million ordinary shares with the company's largest shareholder, L1 Capital Pty Limited to raise a total of $40 million. The shares were issued at a price of $0.25 per share, representing a 5.7% discount to the last traded price. Under the terms of the placement, Hastings also issued 80 million free unlisted options to L1 Capital on the basis of one option for every two new ordinary shares. The options had an exercise price of $0.325 and an expiration date two years from the date of issue. The options are more properly described as equity warrants (to distinguish them from exchange-traded options) because they are issued by the company and result in the issuance of additional shares when exercised. As a result of the placement, L1 Capital's ownership stake in Hastings rose to 15.15%. See Exhibit 6 for details on recent equity raisings by Hastings. The funds raised from the placement were intended to be used to facilitate the procurement of equipment with a long-lead time such as the acid bake kiln, off-gas scrubber and semi- autogenous grinding (SAG) mill, to pay for the cost of engineering plant design and the Equity financing for Yangibana In the absence of any final decision on the debt financing package with financiers, and without an established cash flow stream, Hastings has been reliant on raising equity finance from shareholders to further develop the project. In early April 2022, the company placed 160 million ordinary shares with the company's largest shareholder, L1 Capital Pty Limited to raise a total of $40 million. The shares were issued at a price of $0.25 per share, representing a 5.7% discount to the last traded price. Under the terms of the placement, Hastings also issued 80 million free unlisted options to L1 Capital on the basis of one option for every two new ordinary shares. The options had an exercise price of $0.325 and an expiration date two years from the date of issue. The options are more properly described as equity warrants (to distinguish them from exchange-traded options) because they are issued by the company and result in the issuance of additional shares when exercised. As a result of the placement, L1 Capital's ownership stake in Hastings rose to 15.15%. See Exhibit 6 for details on recent equity raisings by Hastings. The funds raised from the placement were intended to be used to facilitate the procurement of equipment with a long-lead time such as the acid bake kiln, off-gas scrubber and semi- autogenous grinding (SAG) mill, to pay for the cost of engineering plant design and the

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SOLUTION IN DETAILS To estimate the market value of the warrants issued to L1 Capital we can use the BlackScholes option pricing model The model assumes that the underlying asset price follows a geome... View the full answer