Real Option Valuation 1.0 - User Guide and FAQ

Frequently Asked Questions - Real Option Valuation

1. Why can't I see all of the cell formulas?
   The worksheets are protected to ensure the robustness of operation. However, critical formulas are outlined in the embedded help prompts.
   
   
2. When I open the file, it asks me if I want to enable macros. What should I do?
   You need to click "Yes" to accept macros in order to run the tools.
   
   
3. When should I use Real Option Valuation?
   While traditional discounted cash flow analysis is an essential part of a business proposal, it fails to account for any strategic options that may be embedded in the proposal. This limitation has become more prevalent in today's increasingly dynamic, competitive and technology driven business environment. To address this, Real Option Valuation has gained considerable popularity as a mechanism to understand and quantify the potential options embedded in proposals.
   
   
4. How do I know which Real Option model to use?
   The Menu sheet in the model outlines the characteristics of each valuation method and how they apply to specific situations. It is also common to apply more than one model to the same investment proposal. For example, if a new product investment is being considered, it is useful to evaluate both the Option to Delay the investment, and critical market entry points under the Game Theory model.
   
   
5. Can I link my Investment Valuation results to the Real Option model?
   Yes. You can create links to the results of the Investment Valuation or other models from any of the blue input cells in the Real Options Valuation model. This is a benefit of using multiple Excel templates and is a recommended approach.
   
   
6. Where can I get market volatility data for the Pre-defined input sheet?
   Predefined volatility data should be based on businesses that relate as closely as possible to the underlying business being evaluated. This can be from similar historic business cases in the same organization or market equity data of businesses similar in nature, size and location as a proxy. Market volatility data can be acquired from market data providers (such as Bloomberg or Reuters), Stock Market Exchanges, Investment Houses, or specific research organizations.
   
   
7. The Game Theory model asked me for the Solver add-in. What is the Solver add-in?
   The Solver add-in ships with Microsoft Excel and uses an algorithm to find solutions to "what-if" scenarios based on adjustable cells and constraint cells.
   
   
8. When I open the model, I get a "Compile Error in hidden module" message. Why is this?
   This is due to the Solver add-in that ships with Microsoft Excel 2002/03. You should first make sure that you have the Solver add-in loaded by opening a blank workbook and choosing Tools >> Add-ins and checking the Solver box. You may need to insert your Office or Excel installation CD if this is the first time you have loaded the add-in.
   
   If the problem persists, you may also need to reinstate the reference to the Solver add-in by opening an empty workbook with the template already open, then going to the Visual Basic Editor by choosing Tools >> Macros >> Visual Basic Editor. In the Visual Basic Editor select the new workbook's project (you may need to select View >> Project Explorer and select the new workbook's project). Choose Tools >> References, (select SOLVER if it appears in the list) and Browse to the Solver.xla usually located at C:\Program Files\Microsoft Office\Office10\Library\Solver (You may need to select "All File Types" in the dropdown box at the bottom in order to see the ".xla" file types). Now save the template and the problem should be resolved. Depending on your version of operating system, you may also need to reboot your PC.