Real options analysis: an introduction in a very small nutshell

9
Nov

Real options analysis: an introduction in a very small nutshell

  • Why?

Because standard investment evaluation methods (net present value) do not take into account managerial flexibility

  • Irreversible decision making?

(Almost?) each type of decision has an irreversible cost: do you know one?

  • Uncertainty?

(Almost?) each type of uncertainty can be addressed by a real options analysis: technical uncertainty, market uncertainty, policy uncertainty, … which type of uncertainty do you face?

  • Flexibility?

(Almost?) all types of flexibility can be integrated in the model. The option to wait, option to abandon, option to expand, growth option, option to change output, …  how flexible are you?

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