Real Options Valuation of e-learning Projects

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Freitas, A. & Brandão, L. (2010). Real Options Valuation of e-learning Projects. International Journal on E-Learning, 9(3), 363-383. Chesapeake, VA: AACE.
Retrieved from http://www.editlib.org/p/30366.

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Journal Information

International Journal on E-Learning
ISSN 1537-2456
Volume 9, Issue 3, July 2010
Association for the Advancement of Computing in Education (AACE)  Chesapeake, VA

More Information on IJEL

Authors

Angilberto Freitas, Unigranrio, Brazil; Luiz Brandão, PUC-Catholic University, Brazil

Abstract

New information and communication technologies have been gaining widespread use in Distance Education (DE) models. At the same time, the uncertainty in the market demand for this form of higher education is such that the valuation of e-Learning projects has become increasingly difficult and complex. This is due to the fact that uncertainty and flexibility are central to DE projects, and traditional valuation models such as the Discounted Cash Flow (DCF) method fail to capture the value of the management flexibility that is inherent in these types of projects. We analyze a typical college level MBA DE project and show how option pricing methods can be used to determine both the project value and the optimal investment strategy. We develop a real options model which allows managers to optimize their decision making process when there is the option to postpone project implementation for a limited period of time. We conclude that this approach allows for a more comprehensive valuation of the strategic flexibilities that exist in this class of project, improves the quality of managerial decisions and reduces the risk of investment under uncertainty. Key words: distance education; e-learning; real options; valuation; management flexibility.

Keywords

• Administration
• Evaluation
• Business
• eLearning
• Planning

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