Finansiel fleksibilitet, real optioner og kapitalfondsværdiansættelse

Marc Thaning Alding

Student thesis: Diploma thesis


This assignment questions the approach that private equity funds apply when valuing highly leveraged buy-outs without taking the option of future investments opportunities into consideration. In past years Private Equity funds has grown accustomed to large debt ratios, and low interest rates. This has now changed. However this assignment is not confined to the effect of the credit crunch on Private Equity’s debt ratios, though the recent change has inspired the search for other limits that might pose direct or indirect constraints on a company´s target capital structure. Instead the chosen issue is how a Private Equity fund should regard its choice between optimal capital structure, defined as minimum WACC, and financial flexibility to invest in future business opportunities. This thesis proposes a solution to the issue by applying well known financial models after having considered the usability and usage of them individually. For valuation of the company and its changing capital structure the Discounted Cash Flow model is chosen. For valuation of financial flexibility the binomial model is chosen. When measuring financial flexibility, the value cannot be calculated as a simple call or put option, but must be measured as the difference between two call options. Applying well known models to solve this seldom quantified question serves two purposes. 1) Well known models allow the reader to focus on the issue at hand instead of the method. 2) Refinement, further development or implementation of the method is easier and faster when building on widely financially accepted models. The thesis develops a combined theoretical model, The Expanded DCF model, which is applied to the real life case example of TDC, a Danish telecom company that was bought by Private Equity funds in 2006. The business model of the Private Equity funds is seen as prerequisites when applying the model. The optimal capital structure and debt payback is calculated using the company’s financial statement. The as-is option value of financial flexibility and the total value of the company is determined. Finally the optimal capital structure is calculated taking both debt levels and financial flexibility into account. The result proves that applying real option analysis to value financial flexibility generates value when determining the optimal capital structure.

EducationsGraduate Diploma in Finance, (Diploma Programme) Final Thesis
Publication date2010
Number of pages103