Introduction: Real option analysis (ROA) is a decision-making structure that basically calculates the value of a future business decision. ROA borrows from financial options theory. A financial option gives the buyer of a financial asset the right‚ but not the obligation‚ to buy a stock or bond‚ for example‚ at a predetermined price at a future date. By analogy‚ a real option is a managerial decision-making tool that calculates the value of a business decision that a manager has an option‚ or right‚
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REAL OPTIONS: STATE OF THE PRACTICE by Alex Triantis‚ University of Maryland‚ and Adam Borison‚ Applied Decision Analysis/ PricewaterhouseCoopers1 n an economic environment characterized by rapid change‚ great uncertainty‚ and the need for flexibility‚ it has become increasingly important for corporate managers to use investment evaluation tools and processes that properly account for both uncertainty and the company’s ability to react to new information. Real options has emerged as an approach
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he real option approach to investment decision making The real option approach to investment decision making does not provide a superior alternative to traditional methods Capital investment decisions are among the most important strategic decisions a company can make. Twenty years ago‚ managers began to realise that the traditional capital spending decision techniques such as discounting cash flow (DCF) were based on estimated revenues and costs and hence not appropriate in an uncertain arena
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Laura Martin: Real Options and the Cable Industry Introduction Laura Martin‚ an equity research analyst for cable stocks‚ believes that the best way to value cable stocks is through creative methods such as real options and not through more traditional or typical valuation methods such as EBITDA multiples‚ ROIC analysis and DCF analysis. In 1999 she presented at the Credit Suisse First Boston Broadband conference‚ where she wanted to portray the message that real options is a superior valuation
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#1 – Laura Martin: Real Options and the Cable Industry 1. Consider the multiples analysis developed in Exhibits 2‚5 & 6 Please describe the method of ‘Multiples’ using case numbers and answer to the following questions: 1.1. What assumptions does this analysis rely upon? 1.2. How is Martin’s regression analysis different from/similar to traditional multiples analysis? 1.3. Do you agree with her interpretation of the regression analysis? 2. Consider the DCF analysis presented in Exhibit
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Laura Martin: Real Options Valuation in the Cable Industry Case Questions 1. What is the nature of Laura Martin’s job? Define the specific problem that she is addressing. A. Laura Martin is an equity research analyst. This was a unique opportunity to demonstrate her knowledge of the drivers of value in the cable industry. She was going to reveal the value of stocks of cable industry using real options‚ which is a more realistic way of evaluating the value of a project than EBITDA multiples
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Applications of option pricing in corporate finance Option pricing is used in four major areas of corporate finance: • Real Options Suppose a company has a 1-year proprietary license to develop a software application for use in a new generation of wireless cellular telephones. Hiring programmers and marketing consultants to complete the project will cost $30 million. The good news is that if consumers love the new cell phones‚ there will be a tremendous demand for the software. The bad news
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Stock Option and Ethics Carol Berry ACC201 Principles of Financial Accounting Instructor: David Miller August 1‚ 2011 Stock Option and Ethics In today’s corporate world stock options makes up and is increasingly dominates CEO pay packages. CEO’s and top level executives are paid in a variety of different ways and stock options are just one of the ways that they get paid. CEO’s and executives have skills and responsibilities that allow directors of companies to pay these executives an extremely
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ANALYSIS OF FINANCIAL STATEMENT The company uses two statements for reporting its profit or loss and other comprehensive income. The following details is shown: STAFF COSTS Staff costs increased by approximately HK$108.5 million‚ or approximately 37.8% from the year ended 31 March 2013 to 2014. The salary levels of employees in the food and catering sector has been generally rising in recent years. The increase was attributable to higher salaries and new staff recruited for the newly opened
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Evernote case analysis Prof. Baba Prasad 1. Provide a historical context of Evernote—what were its origins? What does it do? How did it grow? Evernote was founded by Stephen Pachikov in 2004. Later along with Phil Lebin they joined forces and formed Evernote with Lebin taking over as CEO and Pachikov taking more of a board role. Evernote launched its first product in 2008. Let’s go into a deeper role to find out more information about the company’s major brains. Steven Pachikov Born in Vartashen
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