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@article{ART001403728},
author={Jun Jae Bum},
title={Appraisal of Revenue Cap Agreement in BOT Project Finance},
journal={The Korea Spatial Planning Review},
issn={1229-8638},
year={2009},
volume={63},
pages={3-27},
doi={10.15793/kspr.2009.63..001}

TY - JOUR
AU - Jun Jae Bum
TI - Appraisal of Revenue Cap Agreement in BOT Project Finance
JO - The Korea Spatial Planning Review
PY - 2009
VL - 63
IS - null
PB - 국토연구원
SP - 3
EP - 27
SN - 1229-8638
AB - Limited public funds for infrastructures have the government consider joining the private in a BOT project finance scheme. Generally, the BOT projects entail lots of managerial flexibilities that may induce the radical change of project's cash flows, an asymmetric payoff, when facing on the uncertainties comes from the BOT project finance's unique characteristics. Among various managerial flexibilities occur in the BOT projects, the revenue cap agreement is frequently used to protect the government from the private's revenue exploitation. However, its impact on the project value is not well understood because the popular capital budgeting theory, NPV(Net Present Value) analysis, is limited to assess the contingency of this agreement. The purpose of this paper is to develop the numerical model to better assess the impact of the revenue cap agreement on the project value with the concept of the option pricing theory and to suggest a theoretical framework in quantitatively evaluating this agreement. The approach applied in this paper is justified with the hypothetical BOT toll case to show its applicability and some meaningful conclusions are drawn from. The results by the option pricing concept are scrutinized over those by NPV analysis and, finally, the revenue cap value appears significant relative to the project value.
KW - BOT Project Finance;Option Pricing Theory;NPV Analysis;Managerial Flexibility;Revenue Cap Agreement;Repeatedly-exercisable Call Option
DO - 10.15793/kspr.2009.63..001
ER -

Jun Jae Bum. (2009). Appraisal of Revenue Cap Agreement in BOT Project Finance. The Korea Spatial Planning Review, 63, 3-27.

Jun Jae Bum. 2009, "Appraisal of Revenue Cap Agreement in BOT Project Finance", The Korea Spatial Planning Review, vol.63, pp.3-27. Available from: doi:10.15793/kspr.2009.63..001

Jun Jae Bum "Appraisal of Revenue Cap Agreement in BOT Project Finance" The Korea Spatial Planning Review 63 pp.3-27 (2009) : 3.

Jun Jae Bum. Appraisal of Revenue Cap Agreement in BOT Project Finance. 2009; 63 3-27. Available from: doi:10.15793/kspr.2009.63..001

Jun Jae Bum. "Appraisal of Revenue Cap Agreement in BOT Project Finance" The Korea Spatial Planning Review 63(2009) : 3-27.doi: 10.15793/kspr.2009.63..001

Jun Jae Bum. Appraisal of Revenue Cap Agreement in BOT Project Finance. The Korea Spatial Planning Review, 63, 3-27. doi: 10.15793/kspr.2009.63..001

Jun Jae Bum. Appraisal of Revenue Cap Agreement in BOT Project Finance. The Korea Spatial Planning Review. 2009; 63 3-27. doi: 10.15793/kspr.2009.63..001

Jun Jae Bum. Appraisal of Revenue Cap Agreement in BOT Project Finance. 2009; 63 3-27. Available from: doi:10.15793/kspr.2009.63..001

Jun Jae Bum. "Appraisal of Revenue Cap Agreement in BOT Project Finance" The Korea Spatial Planning Review 63(2009) : 3-27.doi: 10.15793/kspr.2009.63..001