Sunk costs play a central role in antitrust economics, but are often misunderstood and mismeasured. I will try to clarify some of the conceptual and empirical issues related to sunk costs, and explain their implications for antitrust analysis. I will be particularly concerned with the role of uncertainty. When market conditions evolve unpredictably (as they almost always do), firms incur an opportunity cost when they invest in new capital, because they give up the option to wait for the arrival of new information about the likely returns from the investment. This option value is a sunk cost, and is just as relevant for antitrust analysis as the direct cost of a machine or a factory.

This paper addresses the tension between benefits of centralized data control against the benefits of decentralized control at the level of the business unit. Centralized data control provides the benefit of uniform standards whereas business unit data control grants flexibility to react to rapidly changing environments. Many data standardization efforts fail because they do not fully take into account the value of flexibility and ownership incentives. We use a real options based framework and the theory of incomplete contracts to derive propositions about the optimal level of data standardization across the enterprise. Applications of the propositions are illustrated with case vignettes. The paper makes two main contributions. First, the approach defines formally how incentive structures influence ownership of the option value or value of flexibility, which is an intangible information asset. Second the derived propositions would help senior management to more precisely consider aligning incentives in data standardization exercises.

Thesis (MScEng)--Stellenbosch University, 2012. / ENGLISH ABSTRACT: This study explores the implementation of an integrated capital budgeting visual mapping framework comprised of both Discounted Cash Flow (DCF) and Real Options Analysis (ROA) techniques. Physical asset investment decisions are based largely on rigid discounted cash flow tools which provide untimely and incomplete decisional criteria. While literature outlines the wide spread use of traditional DCF techniques, it very openly reveals large limitations, including its static inflexibility and slow to evolve framework. ROA is a more recent valuation tool based on stock option theory. It brings into account added value found in the flexibility of managerial decision making and uncertain conditions. This study implements a combined DCF and ROA capital budgeting tool within a Physical Asset Management (PAM) environment. The validity of the framework is realised through an industry relevant case study presented by a South African mining company. / AFRIKAANSE OPSOMMING: Hierdie tesis ondersoek die toepassing van ’n geïntegreerde visuele kapitaalbegrotingafbeeldingsraamwerk wat uit verdiskonteerde kontantvloei en reële opsie–analise bestaan. Fisiese batebeleggingsbesluite is dikwels gebaseer op rigiede kapitaalbegrotingstegnieke wat onvolledige besluitnemingsmaatstawwe aanbied. Terwyl literatuur die wydverspreide uiteensetting van verdiskonteerde kontantvloei openbaar, is daar nog steeds baie beperkings, soos die onbuigsaamheid en die stadige ontwikkelingstempo van verdiskonteerde kontantvloei– analise. Reële opsie–analise is ’n meer onlangse waardasiemetode wat op aandelemarkfinansies gebaseer is. Reële opsies word addisionele waarde bygevoeg deur die onsekerheid en buigsaamheid van fisiese batebeleggings. Hierde tesis implimenteer ’n gekombineerde verdiskonteerde kontantvloei en reële–opsie kapitaalbegrotingmetode binne ’n fisiese batebestuur omgewing. Die geldigheid van die gekombineerde metode is getoets met behulp van ’n gevallstudie beskikbaar gestel deur ’n Suid Afrikaanse myn.

[pt] Esta pesquisa tem três objetivos. Como primeiro objetivo, pretendemos ilustrar uma aplicação prática de avaliação de uma empresa empregando a teoria de opções reais baseada no tratamento dado por Dixit & Pindyck [1994]. Nossa idéia é empregar a técnica de opções reais para avaliar uma empresa que detenha uma opção de adiar um projeto de investimento na presença de competidores, que entram no mercado aleatoriamente. A incerteza do mercado é modelada através de processo estocástico de Movimento Geométrico Browniano, enquanto que a entrada dos competidores é modelada através de uma componente de Poisson. A Companhia Siderúrgica de Tubarão foi escolhida para ilustrar a aplicação devido ao fato da mesma possuir três grandes projetos em fase de estudo/execução. Como segundo objetivo, pretendemos adaptar uma aplicação da teoria de opções reais para avaliação de empresas de alta tecnologia desenvolvida por Schwartz [2000]. Em seu trabalho, Schwartz faz uma avaliação da Amazon.com levando em consideração o fato de que seus acionistas tem perdas de capital limitadas em caso de falência da empresa. Desta forma, empregando técnicas de simulação, Schwartz propõe um corte na distribuição de probabilidades dos fluxos de caixa da empresa nos casos em que ocorrem falências. Nossa idéia é adaptar o processo para avaliar a Globo Cabo, empresa de TV a Cabo, Internet e Telecomunicações das Organizações Globo. Como nosso terceiro objetivo, pretendemos verificar qualitativamente, dentro de nosso universo de exemplos limitado, o quanto a teoria de opções reais pode agregar ao processo de avaliação de empresas. / [en] This research has three objectives. Our first objective is to apply real options theory, based on Dixit & Pindyck [1994] development to value a listed company. In particular, our intention is to value a company that has investment projects with delay options, in markets subjected to competitors random entry. We adopted the Geometric Brownian Motion to model the market uncertainty. The uncertainty concerning the competitors entry is assumed to be described by a Poisson Process. The company we have chosen is the Companhia Siderúrgica de Tubarão. The main reason behind our choice is the fact that the company has publicly announced that it is studying three big projects for investment.As a second objective, we intend to apply real option theory to value a high technology company using the methodology developed by Schwartz [2000]. In his work, Schwartz valued Amazon.com taking into account of the fact that Amazon`s shareholders have limited liability in case of Amazon`s bankruptcy. Our idea is to adapt Schwartz`s framework to value Globo Cabo, the Organizações Globo subsidiary in the business of cable TV, internet and telecommunications. Our third objective is to study qualitatively how much real options theory can contribute to the business valuation process. Our conclusion will take into account our very limited sample. / [es] Las opciones reales basadas en el tratamiento dado por Dixit&Pindyck [1994]. Nuestra idea es emplear la técnica de opciones reales para evaluar una empresa que considere el atraso de un proyecto de inversión en presencia de competidores, que entran en el mercado aleatoriamente. La incerteza del mercado es modelada a través de proceso estocástico de Movimiento Geométrico Browniano, mientras que la entrada de los competidores se modela a través de una componente de Poison. La Compañía Siderúrgica de Tubarão fue elegida para ilustrar la aplicación ya que posee tres grandes proyectos en fase de estudio/ejecución. Como segundo objetivo, se pretende adaptar una aplicación de la teoría de opciones reales para la evaluación de empresas de alta tecnologia desarrollada por Schwartz [2000]. En su trabajo, Schwartz faz una evaluación de la Amazon.com considerando el hecho de que sus acionistas tienen pérdidas de capital limitadas en caso de quiebra de la empresa. De esta forma, utilizando técnicas de simulación, Schwartz propone un corte en la distribución de probabilidades de los flujos de caja de la empresa en los casos de quiebra. Nuestra idea es adaptar el proceso para evaluar la Globo Cabo, empresa de TV a Cabo, Internet y Telecomunicaciones de las Organizaciones Globo. Nuestro tercer objetivo es verificar cualitativamente, dentro de nuestro universo de ejemplos limitado, cuanto la teoría de opciones reales puede agregar al proceso de evaluación de empresas.

[pt] Como resultado dos altos níveis da velocidade de mudança, de interdependência e incerteza do atual ambiente de negócios, as organizações de todos os setores industriais estão enfrentando novos desafios associados à necessidade de adaptação e de inovação contínua. Esta dissertação pretende destacar que a abordagem de Planejamento Adaptativo constitui uma resposta para os problemas de gestão em ambientes turbulentos e, também, que a Teoria das Opções Reais é um importante instrumento gerencial para aumentar a eficiência do processo de tomada de decisões estratégicas. A dissertação tem como objetivo caracterizar e analisar a evolução do processo de planejamento da Empresa Brasileira de Aeronáutica S.A. - Embraer, segundo os preceitos da Abordagem de Planejamento Adaptativo e propor a adoção das opções reais em seu processo decisório. Foram investigadas a evolução dos processos de planejamento da Embraer pós-privatizada e as técnicas utilizadas na avaliação econômica de seus projetos de investimento. Foram feitas, também, propostas de possíveis aplicações da Teoria das Opções Reais na Embraer, que poderão ser incorporadas em seu processo de planejamento. / [en] As a result of the high degree of change, interdependence and uncertainty of the current business scenario, companies of all industry sectors are facing new challenges associated to the need of adaptation and innovation. This thesis intends to point out that the Adaptive Planning represents an answer for management problems associated to turbulent environments, and the Real Options Theory is a significant managerial instrument to increase the efficiency of strategic decisions. This study aims at describing and analyzing the evolution of the planning approach adopted at Empresa Brasileira de Aeronáutica S.A. - Embraer according to the Adaptive Planning principles and to propose the adoption of the Real Options Theory on its decision-making process. It consists of an investigation of the post-privatization phase of Embraer s planning evolution and the economic investment evaluation tools currently used at the Company. The thesis ends with the proposal of few applications for the real options method at Embraer, which can be introduced in its planning process.

[pt] Em 2013, a Resolução CMN 4.275 alterou a redação da Resolução CMN 3.792 que determina as diretrizes dos investimentos dos fundos de pensão brasileiros. No âmbito dos investimentos imobiliários, um dos efeitos da nova Resolução foi a vedação imposta às entidades fechadas de previdência complementar (EFPCs) em adquirir participação superior a 25 por cento de imóvel que se encontre em fase de construção. Tal limitação desencoraja os fundos de pensão a adquirirem imóveis que não estejam totalmente construídos, uma vez que a compra de apenas 25 por cento do imóvel colocaria a entidade na condição de sócio minoritário, comprometendo sua ingerência no ativo e prejudicando aspectos de governança no imóvel. Havendo interesse na compra do ativo, vislumbra-se a possibilidade de o investidor institucional, dentro da nova regulação, adquirir uma opção de compra de percentual do ativo que lhe confira a posição de sócio majoritário, ou seja, a aquisição entre 51 por cento e 100 por cento do imóvel, com vencimento na data em que o ativo estiver construído. Dentro desse cenário, o presente estudo pretende apresentar a opção de compra como alternativa para viabilizar a aquisição desse tipo de ativo, calculando o valor justo do prêmio a ser pago por essa opção. O resultado obtido mostrou que o prêmio para aquisição de opção nos percentuais de participação majoritária varia de cerca de 1,15 por cento (para 51 por cento do imóvel) a 2,29 por cento (para 100 por cento do imóvel) do valor total do ativo o que, a nosso ver, inviabiliza a possibilidade de negócio nesse formato, pois os valores de prêmios encontrados não se mostram atrativos para o incorporador que precisa arcar com os custos da construção. Sendo assim, havendo interesse dos fundos de pensão em investir em imóveis em construção em percentual acima de 25 por cento, como limita a atual legislação em vigor, sugere-se encaminhar ao órgão regulador pedido de revisão da instrução solicitando que tal limite seja aplicado ao total de recursos do plano de benefícios em vez de considerar o valor total de um mesmo empreendimento, sob a alegação de ajustar os investimentos ao porte de cada plano de benefícios. / [en] In 2013, Resolution CMN 4,275 amended the wording of Resolution CMN 3,792, which determines the guidelines for investments of Brazilian pension funds. In the context of real estate investments, one of the effects of the new Resolution was the prohibition imposed on closed-end private pension entities (EFPCs) in acquiring more than 25 percent of the property that is under construction. Such a limitation discourages pension funds from acquiring real estate that is not fully constructed, since the purchase of only 25 percent of the property would place the entity as a minority partner, disturbing its involvement in the asset and impairing governance aspects of the property. If there is an interest in the purchase of the asset, it is possible for the institutional investor, within the new regulation, to acquire a call option in a percentage of the asset that gives it the majority shareholding position, that is, the acquisition between 51 percent and 100 percent of the property, with maturity on the date the asset is built. Within the scenario, this study, presents the call option as an alternative to enable the acquisition of type of asset, calculating the fair value of the premium to be paid by option. The result obtained showed that the premium for the acquisition of the option in the percentage of majority ownership varies from about 1.15 percent (to 51 percent of the property) to 2.29 percent (for 100 percent of the property) of the total value of the asset, in our view, makes the possibility of a business in this format unfeasible, since the values of premiums found are not attractive to the developer who has to bear the construction costs. Therefore, since pension funds have an interest in investing in real estate under construction in a percentage above 25 percent, as it limits current legislation, it is suggested that the regulatory body request a revision of the instruction requesting that such limit be applied to the total of benefit plan resources instead of considering the total value of the same enterprise, under the assumption of adjusting the investments to the size of each benefit plan.

Exporting plays an imperative role in many firms growth and survival. For that reason, a profound understanding of export operations is of interest to researchers as well as practitioners. Choosing the export mode is one of the most important strategic decisions a firm makes when exporting to its foreign markets. This decision may affect the firm s resource allocations and shape the possibility of future foreign expansion, and thus has potential performance implications. This study acknowledges that export mode choices should contribute to the firm success initially and on a continuous basis. Hence, it recognises the interlinked nature of export mode operations, and, for the first time, adapts a holistic view on export operation modes. Introducing the portfolio logic, this study investigates antecedents of the export mode portfolio and its performance implications. Two different theoretical approaches of transaction cost economics (TCE) and real options (RO) were used to distinguish different possible export mode portfolios of a firm. The study model is empirically tested using data from 250 Chinese export firms. From the TCE perspective, the finding suggests that firms' levels of investment uncertainty and export marketing capability are the main drivers of an internalised export mode portfolio. From the RO theory viewpoint, on the other hand, the result indicates that firms' levels of endogenous uncertainties (i.e. cultural uncertainty and technological uncertainty) are positively related to the intensity of use of Joint-Investment export modes in the portfolio of firms. In ddition, as expected, the greater the preponderance of exogenous uncertainties (i.e. investment uncertainty and demand uncertainty) the higher the proportion of No-Investment export modes in the portfolio of the firm. Further analysis of firms' export performance reveals that firms shaping their export mode portfolios according to the predictions of real options out-perform firms that shape their export mode portfolio based on TCE considerations. More specifically, firms that reduce their endogenous uncertainty, by engaging more in Joint- Investment modes of export operation across their portfolio, benefit from higher profit performance. The new model developed in this study provides a tool that enables scholars to give better advice to exporters on how they can structure their export mode portfolio for enhanced export profit.

The feasibility of capital projects in an uncertain world can be determined in several ways. One of these methods is real options valuation which arose from financial option valuation theory. On the other hand fuzzy set theory was developed as a mathematical framework to capture uncertainty in project management. The valuation of real options using fuzzy numbers represents an important refinement to determining capital projects' feasibility using the real options approach. The aim of this study is to determine whether the deferral of the decommissioning time (by a decade) of an electricity-generating nuclear plant in South Africa increases decommissioning costs. Using the fuzzy binomial approach, decommissioning costs increase when decommissioning is postponed by a decade whereas use of the fuzzy Black-Scholes approach yields the opposite result. A python code was developed to assist in the computation of fuzzy binomial trees required in our study and the results of the program are incorporated in this thesis. / KMBT_363 / Adobe Acrobat 9.54 Paper Capture Plug-in

[pt] Diversos problemas operacionais ou falhas podem ocorrer em poços produtores e injetores em campos de petróleo e reduzir a produção. Muitas vezes a solução para esse tipo de problema é a intervenção com sonda. No caso de a plataforma de petróleo possuir uma sonda própria de intervenção, essa operação se torna mais ágil e menos dispendiosa. Apesar de proporcionar maior flexibilidade através do gerenciamento ativo da produção, a existência de uma sonda de intervenção acoplada à plataforma geralmente aumenta o investimento requerido em comparação à alternativa sem sonda dedicada. O objetivo desta dissertação foi o de apresentar uma proposta de metodologia, baseada na teoria de opções reais, para a quantificação dessa flexibilidade. A metodologia foi aplicada a um estudo de caso hipotético na área do pré-sal, no qual foram analisadas as opções de intervenção nos poços produtores. A metodologia proposta foi capaz de quantificar o ganho proporcionado pela sonda dedicada. A probabilidade de ocorrência de falhas, o tempo de espera pela sonda, o tipo de falha e a duração da intervenção foram fatores que impactaram o valor da flexibilidade. / [en] Several operational problems or failures may occur in producers and injectors wells on oil fields and reduce the production. Often the solution to this problem is the well intervention with a drillship. If the production platform itself has an intervention rig, this operation becomes more agile and less costly. Despite providing greater flexibility through the active management of production, the existence of an intervention rig attached to the platform usually increases the required investment compared to alternative without a dedicated rig. The objective of this dissertation was to propose a methodology, based on real options theory, to quantify this flexibility. The methodology was applied to a hypothetical case study in the pre-salt area in which was analyzed the options for intervention in producing wells. The proposed methodology was able to quantify the improvement provided by a dedicated rig. The probability of failure, the waiting time for the drillship, the failure type and duration of the intervention were factors that impacted the value of flexibility.

[pt] O mercado de varejo no Brasil vem observando um grande crescimento do número de Shopping Centers no país desde a inauguração da primeira unidade na década de 60. Atualmente este tipo de empreendimento já responde por cerca de 18% do total das vendas no varejo. O projeto de construção de um Shopping Center envolve investimentos vultosos e certamente demanda uma análise criteriosa e precisa, para que não haja falhas. Tradicionalmente a análise deste tipo de investimento é realizada através do método do Fluxo de Caixa Descontado (FCD), no entanto, esta ferramenta não é capaz de avaliar as flexibilidades gerenciais, que no caso dos Shoppings podem ser relevantes e impactar no retorno esperado do investimento. Nesta dissertação avaliamos um investimento em Shopping Center através da Teoria Opções Reais contemplando a opção de expansão, de abandono e a de construção de um condomínio residencial anexo. Os resultados indicam que o retorno do shopping é cerca de 43% maior do que aquele calculado pelo FCD sem consideração destas opções. / [en] The retail market in Brazil is undergoing significant increase in the number of the Shopping Malls since the first mall was inaugurated in the 60’s. Currently this type of business already accounts for about 18% of the total retail sales. Building a Shopping Center involves major capital investments and require careful and accurate valuation analysis. Traditionally the valuation method of choice for this type of investment has been the Discounted Cash Flow (DCF) method. Unfortunately, the DCF approach does not capture the managerial flexibility a project may have, which in the case of shopping malls may be relevant and can have a significant impact on the expected return of the investment. In this dissertation we determine the value of an investment in a Shopping Center under the Real Options approach considering the option to expand, to abandon and to build a residential condominium. The results indicate that in this case, the value of the Shopping Center complex is approximately 43% higher when compared to the traditional DCF that does not consider these options.