Please use this identifier to cite or link to this item:
|Title:||New tools for investment decision-making: real options analysis|
McMaster University, Michael G. DeGroote School of Business, Innovation Research Centre
|Series/Report no.:||Working paper (Michael G. DeGroote School of Business. Innovation Research Centre)|
|Abstract:||<p>Management's ability to alter its future actions in response to changing market conditions can profoundly affect the decision to invest, and undermines standard discounted cash flow rules. The reason is that investment opportunities can be viewed as a collection of options on real assets, or real options. These are exactly analogous to financial options, in that a firm with a discretionary investment opportunity has the right -- but not the obligation -- to acquire the (gross) present value of expected cash flows by making an investment outlay on or before the anticipated date when the investment opportunity will cease to exist. The incorporation of real options analysis into capital budgeting decisions greatly enhances the ability of an organization to assess potential projects. Three simple examples are presented that highlight important real options.</p>|
|Description:||<p>27,  leaves : ; Includes bibliographical references (leaves 26-27). ; "May, 1997".</p> <p>The authors would like to thank Natural Resources Canada, the McMaster Institute for Energy Studies and SSHRC for generous financial support.</p>|
|Appears in Collections:||MINT (Management of Innovation and New Technology) Research Centre Working Paper Series|
Items in MacSphere are protected by copyright, with all rights reserved, unless otherwise indicated.