Real Options for Increasing Value in Industrial Water Infrastructure

Suttinon, Pongsak; Nasu, Seigo

doi:10.1007/s11269-010-9585-0

Cited by 16 publications

(4 citation statements)

References 16 publications

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“…It is noteworthy that a traditional NPV ends to undervalue the value of an investment project, and this makes it unsuitable for risky projects [84,85] and with long planning horizons, as is the case of Pinus elliottii plantations. Thus, when accepting or rejecting investment projects based only on current information and not considering future uncertainties [86,87], inherent in the forest sector, the NPV did not reflect the potential value of the investment projects analyzed.…”

Section: Deterministic Ecoomic Modelmentioning

confidence: 99%

Investments in Pinus elliottii Engelm. Plantations: Real Options Analysis in Discrete Time

Martins

Silva

Munis

et al. 2022

Forests

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Background: The commonly used methods for the financial evaluation of plantation forest investment projects do not incorporate uncertainties and ignore the value related to flexibility. The real options analysis makes it possible to capture these values in investment projects, increasing their value and return. Despite this, studies involving real options in forest investment projects are scarce, specifically those related to Pinus spp. Therefore, this study aimed to: (a) analyze whether the real options analysis adds value to investment projects of Pinus elliottii Engelm. plantations; and (b) make the real options analysis more accessible to forest managers and potentially increase its use in the investment projects of Pinus spp. plantations. Methods: We evaluated two investment projects in P. elliottii plantations in southern Brazil, which differed in the way of obtaining the land for planting: with lease or purchase of land on a planning horizon of 21 years. In the real options analysis, we used deferral, expansion, and abandonment. Results: Individually, the deferral, expansion, and abandonment options add value to investment projects in Pinus elliottii plantations. The option to expand the forested area is one that adds the most value to the investment project with land lease. In the investment project with land purchase, it is abandonment. Conclusions: Investment projects in Pinus elliotti plantations that contemplate the land purchase analyzed through the real options analysis present higher financial returns than those that consider land lease, inverting the result provided by the traditional analysis.

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Section: Deterministic Ecoomic Modelmentioning

confidence: 99%

Investments in Pinus elliottii Engelm. Plantations: Real Options Analysis in Discrete Time

Martins

Silva

Munis

et al. 2022

Forests

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“…In their work, an MRG JFMPC 27,3 and excess revenue sharing are integrated. Ali et al (2012); Park et al (2013) and Suttinon and Nasu (2010), provided other examples of ROA application for water and wastewater projects.…”

Section: Previous Workmentioning

confidence: 99%

Real options analysis of revenue risk sharing in post-disaster housing reconstruction

Vahdatmanesh

Firouzi²,

Rotimi

2021

JFMPC

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Purpose Post-disaster housing reconstruction (PDHR) demands a considerable percentage of global property investment, yet the post-disaster environment presents intricate challenges to reconstruction financing for governments and at the same time, revenue uncertainty for private investors. The purpose of this study is to develop a methodology for tackling land shortage and the financial challenges of PDHR in the aftermath of a disaster. Design/methodology/approach This study developed a methodology based on a combined minimum revenue guarantee and maximum revenue cap model using a well-established real options analysis (ROA) for revenue risk sharing in PDHR projects and land readjustment (LR) for finance. The applicability of the purported model is demonstrated through an illustrative example. Findings The results show that flexibility in the options could increase the PDHR contractor’s risk profile by increasing the expected value of the contractor investment and reducing the probability of investment loss. On the other side, a cap on the contractor revenue stream would allow the government to benefit from any excess in revenue and would counterbalance the value of the option. Practical implications The framework proposed in this study could serve as a practical risk-revenue sharing in PDHR projects. Governments and policymakers could use the findings to enable the successful delivery of PDHR projects and consequently bring the quality of life of affected people to pre-disaster conditions. Originality/value This study can be considered as a first attempt toward the use of the Australian barrier style options structure, and the trinomial lattice valuation model in PDHR projects, which incorporates LR, public-private partnerships, governmental guarantees and PDHR concepts in one ROA-based framework.

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“…The Monte Carlo simulation may be used in order to estimate NPV or PV volatility, considering that future cash flow is a function on attendance of matches. The Monte Carlo simulation with the NPV as a function of the average and volatility of demand helps to estimate the probability distribution of the present value (PV) of the future cash flows (Cheah & Liu, 2006;Cortazar, 2004;Suttinon & Nasu, 2010). 6 After this, the guarantee of minimum demand can be evaluated using constraints in the minimum value of the cash flow for each year in the binomial tree approach of Cox, Ross, and Rubinstein (1979).…”

Section: Real Options Theory and Risk Demand In Football Stadiumsmentioning

confidence: 99%

An approach for evaluating the risk management role of governments in public–private partnerships for mega-event stadiums

Cabral

Silva

2013

European Sport Management Quarterly

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Although public investment is often seen as a necessary source of funding for major sporting event facilities, the degree of government involvement remains a controversial issue. This paper proposes an approach that minimizes government investments, without deterring the interest of private investors, in building/ refurbishing stadiums for mega-events. Using the FIFA World Cup as an example, we concentrate our attention on demand risks, i.e., the risks related to attendance at matches. In order to deal with the risk-return trade-off, we build a model based on real options theory, which allows us to evaluate the size of the incentive the private entrepreneurs need to invest in a PublicÁPrivate Partnership (PPP) setting. Our main findings indicate that ancillary investments near the stadiums are essential to mitigate risks and that the coordination of a central government may reduce the capital required for risk management when several stadiums need to be built in a short time frame. Our results suggest that government should evaluate some infrastructure PPP projects as a portfolio of investments, instead of looking at opportunities only in a single-project basis.

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Real Options for Increasing Value in Industrial Water Infrastructure

Cited by 16 publications

References 16 publications

Investments in Pinus elliottii Engelm. Plantations: Real Options Analysis in Discrete Time

Investments in Pinus elliottii Engelm. Plantations: Real Options Analysis in Discrete Time

Real options analysis of revenue risk sharing in post-disaster housing reconstruction

An approach for evaluating the risk management role of governments in public–private partnerships for mega-event stadiums

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