Managerial flexibility using ROV : a survey of top 40 JSE listed companies

dc.contributor.advisorVan Rooyen, J. H.
dc.contributor.authorMokenela, Lehlohonoloen_ZA
dc.contributor.otherUniversity of Stellenbosch. Faculty of Economic and Management Sciences. Dept. of Business Management.
dc.descriptionThesis (MComm (Business Management))--University of Stellenbosch, 2006.
dc.description.abstractFor the last 40 years, academics advocated the use of the traditional Discounted Cash Flow (DCF) techniques but these suggestions were ignored by practitioners for a long time. The Net Present Value (NPV), Internal Rate of Return (IRR) and Present Value Payback Period (PVPP) are now some of the more widely used traditional DCF-based techniques, especially among large firms. However, academics are now criticising these techniques as they are based on rigid assumptions that ignore the management of flexibility in projects. The Real Option Valuation (ROV) is suggested as an alternative technique because it implicitly incorporates this flexibility in project valuation. With ROV, opportunities in projects are treated as real options and are therefore valued using financial option principles. Real options give the firm the opportunity to act on an investment project (invest, abandon, rescale) at a later date, when more information is available. As with the traditional DCF-based techniques in the past, few firms seem to have adopted ROV despite academics’ recommendations. This study is thus aimed at determining through a survey, whether the largest firms in South Africa, specifically those included in the JSE/FTSE Top 40 index, are using ROV. Based on the results of the survey, it is concluded that firms generally do not use ROV as only nine percent of the respondents were found to be using it. This is largely attributed to managers being unaware of the technique, and to some extent, to the technique’s complexity. On the other hand, managers were generally found to recognise the flexibility despite not using ROV, although it was not confirmed whether they quantify this flexibility.en_ZA
dc.publisherStellenbosch : University of Stellenbosch
dc.subjectReal optionsen_ZA
dc.subjectCapital budgetingen_ZA
dc.subjectJSE top 40en_ZA
dc.subjectManagerial flexibilityen_ZA
dc.subjectCapital investments -- Valuation -- South Africaen
dc.subjectReal options (Finance) -- South Africaen
dc.subjectCapital budget -- South Africaen
dc.subjectDissertations -- Business managementen
dc.subjectTheses -- Business managementen
dc.subjectAssignments -- Business managementen
dc.titleManagerial flexibility using ROV : a survey of top 40 JSE listed companiesen_ZA
dc.rights.holderUniversity of Stellenbosch

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