The Real Options Solution: Finding Total Value in a High–Risk World (Wiley Finance) - Hardcover

Boer, F. Peter

Hardcover

ISBN 10: 0471209988 ISBN 13: 9780471209980

Publisher: John Wiley & Sons, 2002

Synopsis

Harness the power of real options
Real options theory is based on the Nobel Prize––winning work on financial options, and has captured the interest of executives, managers, and investors who need to understand the future profitability of an asset. Originally developed to value technology initiatives and companies, the method is now being applied broadly across various businesses and industries. The Real Options Solution offers comprehensive coverage of the real options approach with a five–step framework and examples for applying the author′s unique total value model based on real options analysis. This approach will help executives and investors minimize the risk of committing to new ventures and delivers a framework flexible enough to apply to business initiatives in all types of companies.

About this title

About the Author

F. PETER BOER is President and CEO of Tiger Scientific, Inc., a firm specializing in science and technology consulting and investments. He is the author of The Valuation of Technology (Wiley), and is an Adjunct Professor of Business and Engineering at Yale University, where he teaches valuation and other subjects. Dr. Boer speaks and lectures frequently for the Industrial Research Institute and is actively engaged with companies that are using options–based methods to evaluate their R&D portfolios.

From the Back Cover

A New Approach to the Valuation of Businesses and Technologies Based on Options Theory

The Real Options Solution presents a practical approach to applying real options analysis that is based on one core insight: all business plans are options. Whether you′re a manager or an investor, this straightforward guide offers a proven new approach to the valuation of businesses and technologies based on options theory–the "total value" model. The Real Options Solution outlines a six–step method for applying this model in a high–risk environment, whether you want to evaluate . . .
∗ Start–ups
∗ R&D–intensive companies
∗ Bellwether companies
∗ Capital investments
∗ Hypothetical business problems

. . . and describes how diminishing returns, risk, and innovation can affect this model.

Filled with real–world examples and insights from F. Peter Boer–an expert on valuation and risk–The Real Options Solution provides comprehensive coverage of the real options approach to valuation and will help you pinpoint opportunities which emerge from high–growth and high–volatility situations.

Drawing on the concepts of his earlier book, Valuation of Technology, and on his extensive experience as a senior executive in R&D intensive industries, Peter Boer, in his new book The Real Options Solution, has provided vital and quantitative new insight for those investing in an increasingly risk–dominated and volatile marketplace. In The Real Options Solution the author combines traditional economic evaluation with strategic evaluation based on option theory–on the possible courses of action (options) that transcend the purely economic evaluations in both time and very frequently economic and other returns. This excellent book should be required reading for venture capitalists and indeed both those in, and those contemplating entry into today′s and tomorrow′s markets. The basic ideas here are both simple–like all really good ideas–and potentially very powerful as exemplified in Boer′s charming presentation of Queen Isabella′s investment in Columbus′s first voyage. –D. Allan Bromley, Yale University

Dr. Boer′s ideas about the economics and management of industrial R&D have had a significant impact. This novel and wonderfully written book provides a modern framework for the analysis of high–risk, high–reward endeavors, which include research and development. The methodology has great intellectual appeal: it integrates real options analysis and net present value analysis, thus capturing the traits of the "new" and "old" economies in the same analytical framework. This it does in a practical, pragmatic manner, suitable to real–life problems in opportunity (and risk) management. –L. Louis Hegedus, Senior Vice President, Research & Development, ATOFINA Chemicals, Inc.

The Real Options Solution should be read by CEOs, investors, and anyone else interested in making sense of our markets and our economy.–Jeffrey E. Garten, Dean, Yale School of Management

This book is exciting...[Boer has] taken an intellectually challenging subject and made it very interesting. –Jeffrey M. Lipton, President & CEO, NOVA Chemicals

From the Inside Flap

The Real Options Solution

The Real Options Solution: Finding Total Value in a High–Risk World offers a proven new approach to the valuation of businesses and technologies based on options theory. This straightforward, practical guide presents an innovative approach–the "total value" model–to applying real options analysis that is based on one core insight: all business plans are options.

Valuation and risk expert F. Peter Boer provides a solid foundation to the total value approach by examining the differences among book, eco–nomic, and strategic capital, and by using recent business cases to illustrate the point. A review of the methods and limitations of conventional discounted cash flow (DCF) economic valuation sets the stage for the total value approach–a model which bridges the gap between traditional quantitative tools, such as DCF, and the intuitive nature of futures options. Boer outlines a six–step method for applying this model in a high–risk environment, whether you want to evaluate:
∗ Start–ups
∗ R&D–intensive companies
∗ Bellwether companies
∗ Capital investments
∗ Hypothetical business problems

After detailed discussions of how options may be used to manage risk and why all business plans really are options, The Real Options Solution explores how changes in total value are driven by three major factors: risk, diminishing returns, and innovation. You′ll learn how to recognize the signs of value destruction and use innovation to overcome the law of diminishing returns. You′ll also understand how the management of systematic (market) risk requires different techniques–and provides different opportunities–than the management of unique (private) risk. Most importantly, you′ll see how human and intellectual capital are the keys to value creation in a modern economy.

Through a mix of contemporary and historic examples, The Real Options Solution provides a quantifiable approach to the problem of the strategic premium–the gap between apparent economic value and actual value as determined by the marketplace. In outlining how and why the total value model works, this comprehensive guide will help you identify the opportunities of extraordinary strategic value that emerge from circumstances of high growth and high volatility.

Edition details

• Publisher: John Wiley & Sons
• Publication date: 2002
• ISBN 10: 0471209988
• ISBN 13: 9780471209980
• Binding: Hardcover
• Language: English
• Number of pages: 432