REAL OPTIONS THEORY AND ITS APPLICABILITY TO ACQUISITION VALUATION
SINGH, DEEPINDER (2010)
2010
Yrityksen taloustiede, laskentatoimi - Accounting and Finance
Kauppa- ja hallintotieteiden tiedekunta - Faculty of Economics and Administration
This publication is copyrighted. You may download, display and print it for Your own personal use. Commercial use is prohibited.
Hyväksymispäivämäärä
2010-01-11
Julkaisun pysyvä osoite on
https://urn.fi/urn:nbn:fi:uta-1-20292
https://urn.fi/urn:nbn:fi:uta-1-20292
Tiivistelmä
Objectives of the study
The aim of dissertation was to study and analyze the real options theory and its applicability to acquisition valuation. The study was aimed for a better understanding of the real options theory by breaking down the primary concepts of the theory into their essential parts. The applicability to acquisition valuation was partly argued through an illustrative case study.
Research method and data
The methodology of research was concept analysis, which was based on studies by other researchers. The studies were from fields of accounting, finance, investment, and management and organization.
Findings of the study
Real options theory can be seen as a new way of thinking in investment valuations, which can be used to complement the traditional discounted cash flow analysis. The real options theory builds upon the financial option theory and option pricing principles. However, the valuation of real options is not as straight-forward as that of financial options and this is often seen as the biggest stumbling block for a wider use of the theory in the corporate world.
Real options are inherently present in acquisitions. Particularly abandonment, growth and flexibility options can play an important and significant role in acquisition valuation. This was indicated by both literature and illustrative case study.
Key words:
Real options, discounted cash flow approach, acquisition, valuation
The aim of dissertation was to study and analyze the real options theory and its applicability to acquisition valuation. The study was aimed for a better understanding of the real options theory by breaking down the primary concepts of the theory into their essential parts. The applicability to acquisition valuation was partly argued through an illustrative case study.
Research method and data
The methodology of research was concept analysis, which was based on studies by other researchers. The studies were from fields of accounting, finance, investment, and management and organization.
Findings of the study
Real options theory can be seen as a new way of thinking in investment valuations, which can be used to complement the traditional discounted cash flow analysis. The real options theory builds upon the financial option theory and option pricing principles. However, the valuation of real options is not as straight-forward as that of financial options and this is often seen as the biggest stumbling block for a wider use of the theory in the corporate world.
Real options are inherently present in acquisitions. Particularly abandonment, growth and flexibility options can play an important and significant role in acquisition valuation. This was indicated by both literature and illustrative case study.
Key words:
Real options, discounted cash flow approach, acquisition, valuation