The purpose of this study is to apply real options techniques to estimate the value of venture company. Most venture companies are very optimistic about their business opportunity, despite considerable uncertainty about the value of the market opportunity they are chasing.
The DCF (Discounted Cash Flow) method, the one of traditional evaluation method, overlooks uncertainty. In particular, it doesn’t adequately support managerial decision because it ignores the benefits of manager’s flexibility and future opportunity. But, real options capture the value of managerial flexibility in a way that Net Present Value analysis does not.
This study chooses a venture company, the one of GIS company. And it applies the valuation of the company with PER, FV/EBITDA, DCF, Intrinsic Value, and Real Option method. The model applied to the real option approach is Black-Scholes Option Model and Luehrman Model. The result shows that the DCF compared with real options has overestimated the value of the venture company.
In financial terms, a business strategy is more like a series of options than it is like a series of static cash flows. The real option can be used to improve decision making for the sequence and a portfolio timing of strategic investments. This study evaluates the value of two strategically important projects. The results show that a New Address Business Project is more valuable than a Mobile GIS Project.
