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... However, Martin proposes using real options valuation to impute value to the stealth tier, and she thereby arrives at a higher valuation for Cox stock. This provides the context for contrasting several valuation methodologies--traditional DCF analysis, regression-based ROIC and multiple analysis, and real option theory--and assessing how selected assumptions impact the various valuation techniques. ...
However, Martin turned to real option to value the stealth tier. According to Martin, the stealth tier represented a real option for cable companies such as Cox as they could potentially ˇ°light upˇ± the stealth tier as new, currently immature or unknown interactive services were developed. For Martin, the contingent nature of the investment decision and the uncertainty surrounding the ultimate revenue streams made the stealth tier ideal for valuation through real option analysis. ...
In order to conduct a real options valuation of the stealth tier, Martin realized that she need analogous inputs to the inputs used for financial options. Martin considered that the best approach was to value the option of each channel of the stealth tier per home passed. ...
For the strike price of the option, Martin had to calculate the cost to light up one of the seventeen channels of the stealth tier. ...
On the other hand, Martin derived an implied volatility from a traded at-the-money call option on the Cox stock to estimate the relevant volatility for the real option.
Approximate Word count = 1147
Approximate Pages = 4.6
(250 words per page double spaced)
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