• Journal of Navigation and Port Research
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• v.33 no.7
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• pp.469-476
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• 2009

Recent collapse of shipping market right after unprecedent surge clearly demonstrates that shipping industry is extremely risky. Due to the volatile movements of the freight rates, investors tend to ask higher rate of return; higher required return reduces the total net present value of the investment project. For several decades, the Discounted Cash Flow(DCF hereafter) analysis has been the most frequently used valuation technique. However, the main problem of the DCF analysis is its assumption that the discount rate would stay the same during the project life. In other words, it usually does not address the decisions that managers have after a project has been accepted. The purpose of this study is investigate a new valuation method of investment: the Real Option Analysis(ROA hereafter) on ship investment. By replacing the existing valuation methods with the new one, the research will present a new perspective on investment with uncertainty. While uncertainty increases risk of investment and consequently discounts the value of it in the traditional feasibility analysis, in the ROA, a new valuation method which will be addressed in the research, uncertainty means some additional value of flexibility so that the tool can help investors produce more accurate decisions. Contrary to the DCF analysis, the ROA takes managerial flexibilities into account. In reality, capital budgeting and project management is typically dynamic, rather than static in nature. The ROA finds and assesses the values of managerial flexibilities or real options in the investments. The main structures of the research will be as follows: (1) overview of the ship investment project, (2) evaluation of the project by the Net Present Value analysis, (3) evaluation of the same project by the Real Option Analysis, (4) comparision of the two techniques.

• Economic and Environmental Geology
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• v.41 no.5
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• pp.551-562
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• 2008

Option pricing model in finance has been applied to price non-financial options, called real options. The real option valuation method is ideally suited to irreversible decision making under uncertainty, including the need to determine the optimal time to act and even change between alternative courses of action as information is collected. Therefore, the real option valuation method is expected to provide a superior and less subjective approach to determining optimal strategies for water resources supply projects, which have been reported to have huge risks due to uncertainties, and investors and policy makers need to build an optimal strategy - when and if to invest - with uncertainties and managerial flexibilities considered.

• Korean Journal of Construction Engineering and Management
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• v.11 no.6
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• pp.54-64
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• 2010

A firm decides to go to the project based on its investment analysis. However, the cash flows generated from the real project can not be always coincident with what expected as it follows uncertain behavior and the asymmetric payoff caused by the managerial flexibilities involved in the real asset affects the project value. Amongst various managerial flexibilities entailed in most of the real assets, although investment delay has been known to enhance the project value thanks to its ability to provide new market information to management, the related research to select the time to invest have been just few. Therefore, this research aims to show the theoretical framework to decide when to invest reflecting the behaviors of increasing project value and loss recovery cost due to investment delay with option pricing, related financial economic, and variational theories.

• Journal of the Korean Society for Railway
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• v.10 no.2 s.39
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• pp.137-145
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• 2007

In traditional financial theory, the discount cash flow model(DCF or NPV) operates as the basic framework for most analyses. In doing valuation analysis, the conventional view is that the net present value(NPV) of a project is the measure of the present value of expected net cash flows. Thus, investing in a positive(negative) NPV project will increase(decrease) firm value. Recently, this framework has come under some fire for failing to consider the options of the managerial flexibilities. Real option valuation(ROV) considers the managerial flexibility to make ongoing decisions regarding the implementation of investment projects and the deployment of real assets. The appeal of the framework is natural given the high degree of uncertainty that firms face in their technology investment decisions. This paper suggests an algorithm for estimating volatility of logarithmic cash flow returns of real assets based on the Black-Sholes option pricing model, the binomial option pricing model, and the Monte Carlo simulation. This paper uses those models to obtain point estimates of real option value with the G7- HSR350X(high-speed train).

• The Journal of the Korea Contents Association
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• v.11 no.3
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• pp.389-402
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• 2011

Previous research on the management of health care organization has heavily focused on health care quality and operational efficiency, whereas this research deals with flexibility, an important strategic priority in the field of operations management. Particularly, this research analyzes the effects that internal and external resources of volume and product flexibilities have on the organization's financial performance. Survey data from various types of sampled domestic hospitals have been collected using the developed questionnaire and analyzed with a regression model. The results show that volume flexibility based on internal resources has not only main effects but also interaction effects with internal and external resources of product flexibility. However, volume flexibility based on external resources is not shown to have any effect on performance. The explanation and managerial implications from the results are discussed.