You own a trading company engaged in importing and exporting goods. The company could be worth either
Question:
You own a trading company engaged in importing and exporting goods. The company could be worth either $300 million or $100 million next year, depending on whether or not the United States and China reach a trade agreement. There is a 20 percent chance that trade negotiations will fail, in which case the company's value will be low ($100 million). Otherwise, the company's value would be high ($300 million). There is an acquirer willing to pay $210 million for the company right now. However, the buyer will also keep an offer open to buy out the company at $200 millionuntil the US-China trade deal uncertainty is resolvedif offered some form of compensation. If the risk-free interest rate is 5 percent, how much should you be willing to pay the potential buyer for a one-year option to sell your company? Round to the nearest $ million.
$19 million
$30 million
$38 million
$40 million