STEP 4 IDENTIFY DIFFERENT OPTIONS TO SOLVE THE PROBLEM
BY: GUSTAVO LONDOÑO COD. 1110533886
FOR: KARLA NATHALIA TRIANA
UNIVERSIDAD NACIONAL ABIERTA Y A DISTANCIA ESCUELA DE CIENCIAS BASICAS, TECNOLOGIA E INGENIERIA INGENIERIA INDUSTRIAL 2017
ABSTRACT This document is part of phase 4 of the technology assessment and negotiation course, which investigates the methods of valuation of real operations, which allow to evaluate an investment project, so they can be very useful, when it comes to obtaining business benefits. The first part of the paper, allows the theoretical description of the methods of valuation of real operations, stipulating their advantages and disadvantages, and in which case they should be used. The second part of the document contains a description of methods of valuation of real methods, in a technological project using a real example. Then the final part of the paper refers to the explanation of the question: Why is it important to value technological innovations and if, by creating economic value from this, do developing countries have the opportunity to eradicate poverty?
REAL OPTION METHODS The term of real options was established by Stewar Myers in 1977 to refer to the application of option theory in the valuation of non-financial assets, specifically to investment in real assets that would have a flexibility component such as investment In research and development and in the expansion of manufacturing plants. Real options are a method for valuing investment projects that starts from the premise that real investment projects can resemble financial options (call and put) and not a portfolio of risk-free bonds such as the VPN, which leaves Of being useful when situations arise in which the project does not necessarily have to be carried out immediately, ie, be fulfilled later or in parts. In other words, the real options approach is the extension of the Financial Options Theory to options in real (non-financial) assets that allow to modify a project with the intention of increasing its value. Real options allow you to add value to the business by increasing profits or reducing losses. Often the term option is not used to describe these opportunities, rather they are referred to as intangibles rather than as call or put options, but when evaluating important investment proposals, these intangible options are often the key to the decisions. Option pricing models are based on consideration of the following variables: price of the underlying asset, exercise price, time to expiration, interest rate and marke t volatility. CHARACTERISTICS OF THE METHODS OF REAL VALUATION:
expected values of cash flows
cost of investment
uncertainty about project prices
timeframe until the opportunity disappears
maintenance of the option
their value depends on the expected revaluation of cash flows
risk-free interest rate
TYPES OF REAL METHODS:
1. Option to alter the scale of operation This option is divided by:
Expand or expand. The option of expanding production or operating scale of a project if the conditions are favorable, or decreasing it if unfavorable, is a real option equivalent to a US call option. Among the options for expansion are the possibility of choosing the size or dimension and of making continuous investments (investment by stages).
Contract. If the conditions turn out to be negative, the company can make the decision to operate with a smaller size than the existing one, that is to say, with less productive capacity. This decision would allow the company to reduce or save some of its costs. This option can be compared with a put option on part of an initially planned project whose strike price is the potential costs saved.
Stop and restart or temporary closure of operations. Sometimes companies have the possibility to temporarily stop their productive activities when the income obtained is not sufficient to cover the variable costs of operation and then start again when the situation is more favorable. Closing or stopping activities also involves costs, as well as restarting 2. OPTION OF ABANDONING OR CLOSING DEFINITIVELY THE OPERATIONS
It should be divested when the project is not economically justified. Once the project is no longer profitable, the company will cut its losses and exercise this option to abandon the project. This real settlement option provides p artial insurance against failures and is formally equivalent to a US put option with an
exercise
price
equal
to
the
sale
value
of
the
project.
The total value of a project must consider its abandonment value, which is generally not known at the time of its initial evaluation, but depends on its
evolution in the future. There are two important issues to consider in analyzing the value of abandonment:
The need to take it into account, in some way, in the investment decision.
The determination of the time or interval of time in which said value of abandonment reaches
its
maximum
value.
3. OPTION TO WAIT: The company can wait a certain time for some market conditions (especially the price of the product) to change in a way that justifies the investment project. Equivalent to owning a purchase option on a particular project. WHY IS IT A RECOMMENDED TO USE REAL OPTION METHODS BEYOND TRADITIONAL METHODS OF VALUATION TO ASSESS INTANGIBLE ASSETS?
This type of method is used for the valuation of intangible assets, because this indicates the current heat of the adjacent real asset, ie the current value of the cash flows expected to be obtained from that asset over its future life.
WHY IS IT IMPORTANT TO ASSESS TECHNOLOGICAL INNOVATIONS AND IF, BY CREATING ECONOMIC VALUE THEREFORE, DOING DEVELOPING COUNTRIES HAVE THE OPPORTUNITY TO ERADICATE POVERTY?
It is important to evaluate the technological innovations, because first the investment are quite high, and many times to fulfill it, we resort to methods of financing therefore, it is necessary to evaluate or evaluate such investment, in order to be sure to apply the right option And that will be a good project. When applying this type of valuation methods for technological investment, the benefits of the application of the technology are taken into account, and this allows us to visualize the project as a system, and then allows us to evaluate the consequences of the same. Investing in technology, either in production or industry, can result in a growth of industry, and this can benefit the country's economy, because then employment and an increase in per capita GDP of countries are generated, improving The power acquisito of the settlers.
CONCLUSIONS
The methods of valuation by real options consists of making a comparison between the value of the project in the situation in which there is no possibility of waiting to make a decision, with the value of the same in the case of having it. The value when there is no real option is calculated from the same in the case as done with the traditional valuation, calculating the possibility, u the value with real option is done in the same way but deriving each term from the decision tree. The difference between them is the most accurate value of the real option.
BIBLIOGRAPHY
Baek, D., Sul, W., Hong, K., and Kim, H. (March 1, 2007) A technology valuation model to support technology transfer negotiations . R&D Management. Retrieved from: http://bibliotecavirtual.unad.edu.co:2051/login.aspx?direct=true&db=buh&AN=32100351 &lang=es&site=eds-live
García-Delgado, D. (July 1, 2014). The evolution of negotiations of intangible assets apart from industrial property protection in biotechnology. Biotecnologia Aplicada. Retrieved from: http://bibliotecavirtual.unad.edu.co:2051/login.aspx?direct=true&db=edselc&AN=edselc.252.0-84938803564&lang=es&site=eds-live
Kang, Y. (2009). Real Option Valuation of Product Innovation . Retrieved from: http://bibliotecavirtual.unad.edu.co:2051/login.aspx?direct=true&db=nlebk&AN=793059& lang=es&site=eds-live
Sutherland, A., Williams, J. . (2010). Valuing Real Options: Insights from Competitive Strategy. Thomas, Rawley, Gup, Benton E. The Valuation Handbook : Valuation Techniques From Today's Top Practitioners (pp 334 – 366). Hoboken, New Jersey. Retrieved from: http://bibliotecavirtual.unad.edu.co:2051/login.aspx?direct=true&db=nlebk&AN=294473& lang=es&site=eds-live
