An assessment of optimal investment decision for emission control compliance for Odfjell SE : comparison of traditional DCF valuation and Real Option valuation as decision tools

摘要

Increased focus on emission from the shipping sector has enforced new stringent regulationsfor the international maritime industry. Ship owners are forced to innovate and respond to thenew regulations in a cost effective manner. The objective of this paper is to present the mostprominent abatement solutions and assess the economical aspects associated with these. Ourfinal analysis intend to identify the optimal investment decision from a traditional discountedcash flow (DCF) model and compare with results from a more comprehensive real optionanalysis (ROA). More precisely we hope to convince that the option to defer an investmentdecision offers managerial flexibility that should be given a considerable value.The applied valuation methodology for the real option pricing is the binominal approach withrisk neutral probabilities. The framework, method and type of option is explained, andvisualized thru diagrams in our thesis. The principal conclusion is that the optimal investmentdecision from both NPV analysis and ROA is dependent on the expected remaining lifetimeof the vessels. ROA incorporates the value of deferral and the reduction of risk by postponingthe decision. Our result from the ROA indicates a change in optimal investment horizon fromthe standard DCF.