Real Option Valuation of Game Lodge
Date
2011-06-15
Authors
Spencer-Young, Justin Russell
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Abstract
Recent commercialisation of property in the Kruger National Park was done via the
tendering of concession rights to five different properties. South African National Parks
generated scenarios of possible future cash flows for private lodges on the concession
sites. Based on the discounted values of these cash flows, SANP identified what rental
incomes they expected to receive from the different concessions. Following the public
tender of the concessions, SANP found that they had grossly underestimated the value of
the concession rights. The actual tender values of the winning bidders far exceeded
SANP’s projections. Furthermore, the winning bids also exceeded the mean concession
fee valuations for each of the concession.
The findings of this research, through the use of random stochastic modelling and Monte
Carlo simulation show that real option valuation does account for the positive difference
between the winning bids and the mean concession fee values for each of the
concessions investigated
Description
MBA - WBS
Keywords
Real option valuations