Abstract
PurposeThe purpose of this paper is to use fundamental models incorporating structural relationships within the firm in a terminal value model for the second stage of a two-stage valuation model utilized to estimate the value of a company.Design/methodology/approachThe innovation is that growth options are identified within the structural relationships and a model capturing the value of the optionality is incorporated in the second stage of the two-stage valuation model.FindingsSignificant outcomes are that terminal value is shown to be a large portion of a company’s total value and the price behavior for initial public offerings produced by the model is consistent with the result of empirical studies.Originality/valueThis paper explicitly incorporates growth options in the second stage of a two-stage valuation model for the firm.
Published Version
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