DCF Versus Real Options, How Best to Value Online Financial Companies (with an Application to Egg)

How do you value an Internet company? With stormy weather now rocking the Internet world, dot-com investments are no longer the watertight bets they used to be. It now makes sense to forecast the value of the company you are thinking of investing in. Jean Dermine, INSEAD Professor of Banking and Finance and INSEAD MBA alumni K. Wildberger and H. Georgeson use this case study to compare two methods, Discounted Cash Flow and Real Option Valuation, that can help you make sunnier investment decisions. The methodology is applied to the valuation of the British Internet bank Egg.

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