Abstract This study examines the value and the best time period to expand the investment of an airport infrastructure project by operating a flight school, skydiving center and guesthouse on the airport using compound real options and net present value methods. The results demonstrate that real option value of the project is more optimistic than traditional valuation method and the best time for expansion investment is eighth year of the operation. Moreover, sensitivity analyses showed that, the strongest variables effecting the project are volatility and discount rate. The findings show how real option methods and sensitivity analysis can contribute to future decisions of the managers.
Highlights The real option method gives more optimistic results than the traditional valuation method. Strongest variables affecting the project are volatility and discount rate. Increase capital costs decreases the option value. The best time to expand the project is not the beginning, but 8th year of the project.
Airport infrastructure investments and valuing expansion decisions using the compound real option approach
2020-12-28
Article (Journal)
Electronic Resource
English
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