Valuing a high-tech growth company: the case of EchoStar Communications Corporation

Lenos Trigeorgis and Sophocles Ioulianou

The European Journal of Finance, 2013, vol. 19, issue 7-8, 734-759

Abstract: This article uses real options to value a high-tech company with significant growth option potential. The case of EchoStar Communications Corporation is used as an illustration. The company's growth opportunities are modeled and valued as a portfolio of growth options, namely options to expand its pay television, equipment, and internet services. Expansion of the main business can occur geographically (in the USA, internationally, and through partnerships) or through cross-selling of new products and services to its customer base. The internet business can expand via switching to digital subscriber line and through partnerships. The underlying asset (business) for the expansion options is the 'base' discounted cash flow (DCF), after removing the constant growth rate in the terminal-value DCF assumption. The options-based estimate of present value of growth opportunities (PVGO) value substitutes for the terminal growth DCF estimate. We show that our options-based portfolio PVGO provides a better estimate of the firm's growth prospects than the terminal growth DCF assumption.

Date: 2013
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1080/1351847X.2011.640343 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:eurjfi:v:19:y:2013:i:7-8:p:734-759

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/REJF20

DOI: 10.1080/1351847X.2011.640343

Access Statistics for this article

The European Journal of Finance is currently edited by Chris Adcock

More articles in The European Journal of Finance from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().