Last week, we kicked off a two-part series from our Ipreo Private Capital Markets (PCM) team on the option pricing model (OPM).
In part one, David Mesner, a Valuation Analyst specializing in business and securities valuation engagements for corporate finance, financial reporting, and tax purposes, tackled the OPM method of allocating value.
As promised, in this week’s part two David discusses changes in time to exit and its impact on the OPM.
When comparing the resulting enterprise value of an entity when a time to exit is adjusted, there will be more time for the company and common shares to accrue value given a longer time to exit and developmental stages being met. In a shorter time to exit, more of the available proceeds will go toward senior security series as there is less time for value to accrue. The time to exit selections will depend on each company’s circumstances, including management’s opinion on the perceived risk and the company’s longevity up to an exit event. Again, potential decline for the company is limited by the cost associated with the underlying security series, and potential growth has an unlimited range.
Read the full Special Report – Adjustments in the OPM: Time to Exit
Stay tuned for more great material from Ipreo PCM!