An Application of the Real Options Method to the Valuation of a License to Operate 3G Mobile Phone Service in Brazil.

We analyze the contributions of the real option method to the decision making process in the telecommunications industry. We study the case of a public auction purchase of the license to operate a 3G mobile phone system in Brazil. The results indicate that the embedded flexibilities increase the va...

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Bibliographic Details
Main Authors: Rafael Stille, Celso F. Lemme, Luiz Eduardo T. Brandão
Format: Article
Language:English
Published: Brazilian Society of Finance 2010-10-01
Series:Revista Brasileira de Finanças
Subjects:
Online Access:http://virtualbib.fgv.br/ojs/index.php/rbfin/article/view/2675
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spelling doaj-a2c2126b5f76464e92b7cea59bb9d8042020-11-24T23:22:58ZengBrazilian Society of FinanceRevista Brasileira de Finanças1679-07311984-51462010-10-0183329349An Application of the Real Options Method to the Valuation of a License to Operate 3G Mobile Phone Service in Brazil.Rafael StilleCelso F. LemmeLuiz Eduardo T. BrandãoWe analyze the contributions of the real option method to the decision making process in the telecommunications industry. We study the case of a public auction purchase of the license to operate a 3G mobile phone system in Brazil. The results indicate that the embedded flexibilities increase the value of the project by 64% in relative to the discounted cash flow method, which could justify the high premiums paid by the winning firms, which are incompatible with the value obtained from traditional methods of analysis. This suggests that the real options approach used, which can be easily replicated and is fairly intuitive, can be a useful tool to support the decision making process of these firms.http://virtualbib.fgv.br/ojs/index.php/rbfin/article/view/2675Real OptionsProject ValuationTelcommunications3G mobile phone systems
collection DOAJ
language English
format Article
sources DOAJ
author Rafael Stille
Celso F. Lemme
Luiz Eduardo T. Brandão
spellingShingle Rafael Stille
Celso F. Lemme
Luiz Eduardo T. Brandão
An Application of the Real Options Method to the Valuation of a License to Operate 3G Mobile Phone Service in Brazil.
Revista Brasileira de Finanças
Real Options
Project Valuation
Telcommunications
3G mobile phone systems
author_facet Rafael Stille
Celso F. Lemme
Luiz Eduardo T. Brandão
author_sort Rafael Stille
title An Application of the Real Options Method to the Valuation of a License to Operate 3G Mobile Phone Service in Brazil.
title_short An Application of the Real Options Method to the Valuation of a License to Operate 3G Mobile Phone Service in Brazil.
title_full An Application of the Real Options Method to the Valuation of a License to Operate 3G Mobile Phone Service in Brazil.
title_fullStr An Application of the Real Options Method to the Valuation of a License to Operate 3G Mobile Phone Service in Brazil.
title_full_unstemmed An Application of the Real Options Method to the Valuation of a License to Operate 3G Mobile Phone Service in Brazil.
title_sort application of the real options method to the valuation of a license to operate 3g mobile phone service in brazil.
publisher Brazilian Society of Finance
series Revista Brasileira de Finanças
issn 1679-0731
1984-5146
publishDate 2010-10-01
description We analyze the contributions of the real option method to the decision making process in the telecommunications industry. We study the case of a public auction purchase of the license to operate a 3G mobile phone system in Brazil. The results indicate that the embedded flexibilities increase the value of the project by 64% in relative to the discounted cash flow method, which could justify the high premiums paid by the winning firms, which are incompatible with the value obtained from traditional methods of analysis. This suggests that the real options approach used, which can be easily replicated and is fairly intuitive, can be a useful tool to support the decision making process of these firms.
topic Real Options
Project Valuation
Telcommunications
3G mobile phone systems
url http://virtualbib.fgv.br/ojs/index.php/rbfin/article/view/2675
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