Implementing real options in firm valuation

Abstract

This paper concentrates on the business valuation under risk and flexibility. To illustrate how the financial flexibility may influence the value of the company, the equity of the analyzed telecommunication company by applying real options concept is evaluated. The present study applies and compares Discounted Cash Flow method and Real options method. The case study showed that real options approach is able to regard as an adequate tool for equity valuation. The results of this study confirmed that taking flexibility into account has considerable value.