Software : Business : Finance : Real Option Valuation

The Real Option Valuation template encompasses a suite of option pricing tools to quantify the embedded strategic value for a range of proposed or existing investment scenarios. Traditional discounted cash flow investment analysis will only accept an investment if the returns on the project exceed the hurdle rate. While this is a worthwhile exercise, it fails to consider the myriad of strategic options that are associated with many investments. This template provides the ability to identify what options might exist in your proposal and the tools to estimate the quantification of them.

Key features of the Real Option Valuation template include:

• Ease and flexibility of input, with embedded help prompts.
• Informative 'Quick Start' menu for choosing the correct tool for the situation.
• Modified Black Scholes models to value the options to delay, expand, or abandon investments.
• Automatic binomial 'tree' builder model to evaluate complex strategic options with multiple stages.
• Nash equilibrium Game Theory model to evaluate market entry strategies in a competitive environment.
• Ability to predefine historical investment and/or industry risk profiles to utilize across models.

FAQ

What version of Excel do I need?
All templates are compatible with Microsoft Excel 97 or above.

How can I open the download files?
The download files are "zipped" to to minimise the file size. You will need some extraction software like Winzip to open them on your computer once they are downloaded.

Why can't I see all of the cell formulas?
The worksheets are protected to ensure the robustness of operation. However, critical formulas are outlined in the embedded help prompts.

When I open the file, it asks me if I want to enable macros. What should I do?
You need to click "Yes" to accept macros in order to run the tools.

When I open the file, it doesn't ask me if I want to enable macros. Therefore, the macros are disabled. What should I do?
In this case you need to set your macro security settings to Medium. You can do this by opening a blank workbook and choosing Tools >> Options >> Security >> Macro Security, and selecting the Medium level. You should now be presented with the option to enable macros on opening the template file.

Why can't I see the VBA code?
The VBA code has been protected to ensure the robustness of operation and for intellectual property purposes.

Can other users open the models that I have completed?
When other users open the model for the first time on another computer, they are presented with the 30-day trial version. After 30 days, if they have not registered the model, they will still be able to view completed models, but not run processes. In this way, the templates can be freely distributed to clients and/or interested parties to view results.

I want to customize a model for my own use or to distribute it to multiple users in my organization. What are my options?
Upon purchasing the products, you will receive the password to unlock cells, sheets, and the workbook. Since much of the functionality depends on the original workbook structure, modifications made are at the sole risk of the user. Site licenses are available on purchase so that the model can be registered for an unlimited number of users within the same organization.

An updated version of a model is available on your site. How can I upgrade my older registered version?
You can simply download the new version and it will work as a registered version on the same computers that you have your older version on.

When should I use Real Option Valuation?
While traditional discounted cash flow analysis is an essential part of a business proposal, it fails to account for any strategic options that may be embedded in the proposal. This limitation has become more prevalent in today's increasingly dynamic, competitive and technology driven business environment. To address this, Real Option Valuation has gained considerable popularity as a mechanism to understand and quantify the potential options embedded in proposals..

How do I know which Real Option model to use?
The Menu sheet in the model outlines the characteristics of each valuation method and how they apply to specific situations. It is also common to apply more than one model to the same investment proposal. For example, if a new product investment is being considered, it is useful to evaluate both the Option to Delay the investment, and critical market entry points under the Game Theory model.

Can I link my Investment Valuation results to the Real Option model?
Yes. You can create links to the results of the Investment Valuation or other models from any of the blue input cells in the Real Options Valuation model. This is a benefit of using multiple Excel templates and is a recommended approach.

Where can I get market volatility data for the Pre-defined input sheet?
Predefined volatility data should be based on businesses that relate as closely as possible to the underlying business being evaluated. This can be from similar historic business cases in the same organization or market equity data of businesses similar in nature, size and location as a proxy. Market volatility data can be acquired from market data providers (such as Bloomberg or Reuters), Stock Market Exchanges, Investment Houses, or specific research organizations.

The Game Theory model asked me for the Solver add-in. What is the Solver add-in?
The Solver add-in ships with Microsoft Excel and uses an algorithm to find solutions to "what-if" scenarios based on adjustable cells and constraint cells.

When I open the model I get a "Compile Error in hidden module" message. Why is this?
This is due to the Solver add-in that ships with Microsoft Excel 2002/03. You should first make sure that you have the Solver add-in loaded by opening a blank workbook and choosing Tools >> Add-ins and checking the Solver box. You may need to insert your Office or Excel installation CD if this is the first time you have loaded the add-in.
If the problem persists, you may also need to reinstate the reference to the Solver add-in by opening an empty workbook with the template already open, then going to the Visual Basic Editor by choosing Tools >> Macros >> Visual Basic Editor. In the Visual Basic Editor select the new workbook's project (you may need to select View >> Project Explorer and select the new workbook's project). Choose Tools >> References, (select SOLVER if it appears in the list) and Browse to the Solver.xla usually located at C:\Program Files\Microsoft Office\Office10\Library\Solver (You may need to select "All File Types" in the dropdown box at the bottom in order to see the ".xla" file types). Now save the template and the problem should be resolved. Depending on your version of operating system, you may also need to reboot your PC.

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