《mit_valuation_Real Option Valuation》.pdf

Real Option Valuation Entrepreneurial Finance (15.431) - Spring 2002 - Antoinette Schoar Spotting Real (Strategic) Options • Strategic options are a central in valuing new ventures oOption to expand oOption to delay oOption to abandon oOption to get into related businesses • Different approaches to valuing real options oDecision analytic approach oBinomial method oBlack- Scholes model 2 Entrepreneurial Finance (15.431) - Spring 2002 - Antoinette Schoar Real Options in Traditional Valuation Methods • Where are real options in DCF Method? oNo where! • Where are real options in Venture Capital Method? oValuations might be completely based on real options value if the market priced these in oBut we have no way to know whether the market has correctly accounted for real options 3 Entrepreneurial Finance (15.431) - Spring 2002 - Antoinette Schoar Example of “Real Options” Analysis in Horizon Communications • Suppose the key source of uncertainty is the markup of price over carrier settlements. In the baseline (rosy?) scenario it was assumed that this was 25%. • Suppose that instead there is really a 50% chance that it’s 25% and a 50% chance that it’s 15%. • How would you model this uncertainty? 4 Entrepreneurial Finance (15.431) - Spring 2002 - Antoinette Schoar The Wrong Way to Model Markup Uncertainty • Take the mean markup, 20%, and plug that number into the projections. • Assuming 3% terminal growth, this gives an enterprise value of $4.1M per market. If Horizon is to enter 10 similar markets, this would give a valuati