Real Options for Assessing Financing Strategy and Startup Valuation

The original "Real Options Strategic Approach to Find Optimal Company’s Source of Financing" paper rigorously explores and evaluates the concept of expanded Net Present Value (NPV), moving beyond the traditional framework of simple or passive NPV, in the context of various financing options for projects. Utilizing the real options approach, which integrates the principles of corporate finance, real options, and game theory, the study culminates in applying the Risk-Neutral Probability measure and the valuation of a Call Option as per the Black-Scholes-Merton model.

Financing is a critical aspect of launching or developing any project, typically involving a combination of own funds and external financing options. The choice of financing – which can range from loans and mezzanine financing to equity financing or even forward contracts – and the proportion of each funding source remain pivotal questions.

This article addresses the challenge of selecting the most beneficial combination of available financing options. Making the right decision is crucial, as a real option encompasses the value of direct and indirect costs and benefits associated with its use. This decision not only directly impacts investment attractiveness ratios but also fundamentally influences the overall project valuation.

The effect of a real option is essential in any business valuation calculations, especially when it comes to attracting financing. Therefore, understanding and accurately evaluating these options is vital for strategic financial planning and project success. This study offers a detailed analysis and framework for such evaluations, contributing significantly to the field of strategic finance and project management.

The core aim of this research is to provide a comprehensive method for assessing the value of managerial decisions and project flexibility. It aids managers in navigating the complex landscape of strategic financing, offering insights into the optimal selection and combination of available financial options.

Publisher: Cobanoglu, C., & Ongan, S. (Eds.). Proceedings of the International Interdisciplinary Business and Economics Conference, Vol. 1, University of South Florida Sarasota-Manatee, pp. 212–215. USF M3 Publishing. ISSN: 2333-4207.

The full manuscript of the "Real Option Strategic Approach to Find Optimal Company’s Source of Financing" paper is available at: https://doi.org/10.5038/2333-4207-v1.

Dmytro Shestakov, 2014