Flexible Design of Airport System Using Real Options Analysis - MIT

12/14/2007
1.231 Planning and Design of Airport System Dai Ohama
Table 4-3 Summary of Analysis Condition
Initial Future
Investment Expansion
Perspective Simulation Option
Design A
R/W,
PT/W & SE
N/A Deterministic No No
Design B
R/W,
Recognizing
N/A
PT/W & SE
Uncertainty
Yes No
Design C R/W PT/W & SE Incorporating
Flexibility
Yes Yes
Source: Applied R de Neufville, S. Scholtes, T. Wang [7]
4.5 Result of Analysis
Table 4-4, 4-5, 4-6 shows the cash flow pro forma for three cases. Table 4-4 shows the
cash flow pro forma and calculating the NPV of the project assuming the demand of the
number of passengers grows as projected. (Case A) In this case, the expected NPV
(ENPV) of the project is ¥678.8 billion. However, this value is not realistic since the actual
demand of the number of passengers can change from this deterministic value.
Table 4-5 shows the cash flow pro forma and calculating the NPV of the project
recognizing uncertainty. (Case B) In this case, Monte Calro Simulation is conducted and it
produces 2,000 possible demand scenarios. The ENPV of this case is ¥638.3 billion. But
this ENPV is just one of the 2,000 scenarios. This simulation can generate 2,000 ENPV in
each scenario, and can also generate distribution for each scenario. The actual ENPV is
distributed as shown in Figure 4-5. The average of ENPV is ¥569.3 billion, which is less
than that of the Case A. Although this design assumes that there are equal chances that
demand changes to higher and to lower, this design limits the higher value of the project
since the capacity is fixed, while there are still lower chances to generate losses. [7]
Table 4-6 shows the cash flow pro forma and calculating the NPV of the project
recognizing uncertainty and holding the option to expand. (Case C) This case also
recognizes uncertainty and Monte Calro Simulation is conducted, which produces the ENPV
of ¥686.7 billion. But this ENPV is also just one of the 2,000 scenarios. In this design,
the actual ENPV is distributed as shown in Figure 4-5, and the average of ENPV is ¥621.6
billion, which is higher than that of Case B. Because the option to expand is exercised
when the demand is higher than the current capacity, the ENPV is improved higher. The
Term Project: Flexible Design of Airport System Page 18 of 22