Evaluating IT Infrastructure Investments with Real Options: A Korean Case Study
Real options theory applied to Korea's IT infrastructure investments, comparing NPV with compound and growth option models to reveal hidden strategic value in technology projects.
This paper applies real options theory to analyze investments in Korea’s rapidly evolving IT infrastructure sector. Using real data, it compares traditional valuation methods — specifically net present value — with compound and growth option models.
Context
Korea’s technology sector experienced rapid infrastructure buildout in the late 1990s and 2000s, creating capital allocation decisions characterized by high uncertainty, long investment horizons, and significant optionality. This setting provides an ideal empirical context for real options analysis.
Comparative Valuation
The study systematically compares:
- NPV analysis: Standard discounted cash flow with fixed assumptions
- Compound option models: Sequential investment stages, where earlier stages create the option to proceed
- Growth option models: The value of platform investments that enable future strategic moves
Key Finding
The real options approach reveals hidden strategic value that discounted cash flow models overlook — particularly for platform investments that open future opportunities rather than generating immediate cash flows. The Korean case serves as a model for technology-driven investment decisions in rapidly evolving markets.