Free Essay

Real Options

In: Business and Management

Submitted By jamierivera
Words 1628
Pages 7
Running Head: MEMORANDUM

Real Option Analysis

From: ABC
Date: June 5, 2010
Sub.: Real Option Analysis
In the current competitive and dynamic business environment, it is necessary for an organization to consider all the aspects before making an investment decision in a venture. It is also essential for the management of an organization to perform the analysis of operational facilities and financial facilities in a country. It helps the management to make an effective decision in invest in a venture to expand its business operation. The analysis also helps to reduce some risk that may affect the business operation.
The management of the organization is seeking towards facilitating its business in a new uncharted territory. The new venture may be the expansion of current product line or a new product or service. The management of the company is seeking to adjust with the growing demand in Brazil by building a new Caterpillar factory in it. The company doesn’t have information about the operational, financial and capital position in Brazil that may cause an increase in the uncertainties for the business. The organization has a leading position that will be effective tom provide unique advantages to it that is not available for the rivals maintaining purely domestic operations.
In the new venture, the management may shift its value chain activities across its operation networks to eliminate the impact of exchange rate fluctuations, or change in market or product factors. The building of a new caterpillar factory in Brazil would shift its operational and value chain activities. The company has different types of switching options to operate its business in the foreign countries (Tong & Reuer, 2007). The foreign direct investment is the technique that would be used to undertake the venture.
Techniques to Undertake Venture
An organization may expand its business operation in foreign countries through various ways. The global operation provides operational flexibility to an organization that causes an increase in the business effectiveness. The company can use the following technique to undertake the venture in Brazil –
Foreign direct investment:-
Foreign direct investment (FDI) can be described as the long term participation of an organization or a country in another country or the organization of another country. FDI generally involves the participation in management, technical know-how, expertise, etc. In other words, FDI can be described as any form of the investment that is made to earn interest from the enterprise which is operated outside the domestic territory of the investors (Patterson, 2004). To undertake the venture of caterpillar factory in Brazil the organization may use the FDI technique.
FDI technique could be used to establish a relationship between a parent company and its foreign subsidiaries. This business relationship would be effective to increase the effectiveness of business expansion. FDI is also used by the firms to develop new and emerging economies. In the current business environment, FDI is the most growing techniques to expand the business out of the domestic boundaries. FDI enables the management to exploit the technological advantages by establishing production subsidiaries or to improve the exports by increasing commercial presence in the foreign countries (Lee, 2002).
There are various benefits and disadvantages that are provided by FDI. Following are the benefits of undertaking the venture using FDI technique –
Flexibility – The benefit of the flexibility is directly associated with FDI. It is because; the FDI provides production flexibility that generates several incentives for a business that has geographically dispersed operations. The value of production also increases due to switching the production processes between locations of two different countries (Tong & Reuer, 2007). The flexibility in shifting locations provides advantage of lower input prices that protect the organization from adverse movements of exchange rates.
Reduction in downside risks – The advantage of flexibility also allows the global corporations to maintain flexibility in selecting input or output strategies that help to limit the downside risks.
Increase in opportunities – The FDI facilitate flexibility in the business operation that helps to access more opportunities to the firm in maximizing profits and minimizing losses. It also causes an increase in the firm’s value.
Existing strengths – The firms that undertake a venture through FDI also brings their strengths into the business operation and investment decision. The management of the organization may include its intangible assets and market power in the foreign business operation. At the same time, the management can also bring its particular administration heritage and control system that would be effective to increase the profitability and the value of the business (Tong & Reuer, 2007).
Unobserved capabilities – The FDI also helps a firm to bring its unobserved capabilities such as managerial experience, specialized market knowledge etc. in the operation of its subsidiaries that causes an increase in its business effectiveness over its competitors or domestic rivals.
Technological advancement – The venturing through FDI also facilitates technological advantages that cause an increase in its business effectiveness over its competitors.
The FDI provides different advantages to a firm that expands its business globally. The FDI may increase the downside risks for the investors. The downside risk depends on the following factors –
Degree of multi-nationality – The downside risk for an organization depends on the multi-nationality level of the organization. An increase in the number of currencies reduced the risks for the business. The FDI also causes an increase in the complexity and coordination costs for the business due to different locations of production facilities (Tong & Reuer, 2007).
Cultural differences – Undertaking the venture by using FDI technique poses the risk due to cultural differences. The cultural difference may cause the internal uncertainty in the business that may affect its profitability and business operations. The cultural differences reduce the benefits for the firm that it may attain from its latent operation. The cultural difference forces the organization to rely on local parties for the management system that reduces the effectiveness of standard control system of the parent organization. The management of the company also has to change its marketing strategy to adjust with the local market requirements.
Rules and regulations – Undertaking the venture through FDI also poses rules and regulations risks on the firm (Tong & Reuer, 2007). The firm currently entering in Brazil without its analysis that may affects its business effectiveness.
The global business operation provides flexibility in shifting value chain activities along with distribution and manufacturing activities. The across country option provide the flexibility in shifting different business activities in other country. This technique provides the advantage of flexibility in shifting its distribution and marketing activities and also the value chain activities. The management of the company may change its business activities accordingly as the change in external conditions. Through this option, the management of the company may shift its activities by changing labor, costs, macroeconomic conditions and other inputs. The across country option provides a switching options to an organization that increases its effectiveness (Tong & Reuer, 2007).
But at the same time, each country has different rules and regulations that may create complexity for the management in operating their business or to implement a standardized process. The multi-nationality also causes an increase in the travel and communication expenses that reduce profitability and value of the business.
Real Option Analysis
The real option analysis helps to determine a range of possible options and to make the decision for investment. The real value option provides a better insight about the value of an asset that causes an increase in the cash flows of the business. It is because; by developing the understanding about the actual value of assets a firm can develop the technology within the business if the expected payoffs exceed its cost of development. It would be helpful to generate the more income for the physical assets. The real option analysis provides several options to a MNC to facilitate unique advantages (Mun, 2006). The analysis of all alternative is also performed in real option that reduces the probability to failure of the project. It causes an increase in the incentives for the business.
By using the real option analysis an organization may choose the best alternative to enter in the foreign market. It would reduce the cost for the business and would cause an increase in its profitability. The real option analysis also uses the option theory to evaluate the physical or real assets. It also helps to determine the operational flexibility within the business that also alters the present value of cash flows. The management of a firm may also determine the level of uncertainty that receives the management attention and helps to generate positive cash flows from real physical assets (Tong & Reuer, 2007).
With the above discussion, it can be concluded that before making an investment decision it is essential for an organization to perform an analysis for all alternatives. It would be effective to increase the firm’s value and profitability. At the same time it would also reduce downside risks for the business. There are various techniques from which an organization may undertake a new venture such as FDI and Multi-nationality. But before making a decision about the investing the organization should consider all pros and cons of these techniques. By using the real option analysis an organization may alter the present value of cash flows from real physical assets.

Lee, B.H. (2002). FDI from Developing Countries: A Vector for Trade and Development. OECD Publishing
Patterson, N.K. (2004). Foreign Direct Investment: Trends, Data Availability, Concepts, and Recording Practices. International Monetary Fund
Tong, T.W. & Reuer, J.J. (2007). Real options in multinational corporations: organizational challenges and risk implications. Journal of International Business Studies 38, 215-230.
Mun, J. (2006). Real Options Analysis: Tools And Techniques For Valuing Strategic Investments And Decisions (2nd ed.). John Wiley and Sons.

Similar Documents

Premium Essay

Real Options

...Real Options in Corporate Finance Ellen Bjarnadóttir Thesis of 30 ECTS credits Master of Science in Financial Engineering June 2013 i Real Options in Corporate Finance (Notkun Raunvilnana við töku Fjárfestingaákvarðana) Ellen Bjarnadóttir Thesis of 30 ECTS credits submitted to the School of Science and Engineering at Reykjavík University in partial fulfillment of the requirements for the degree of Master of Science in Financial Engineering June 2013 Supervisor: Dr.Sverrir Ólafsson. Professor in Financial Mathematichs, Reykjavík University, Iceland Examiner: Dr. Rögnvaldur Sæmundsson Associate Professor, Reyjavík University, Iceland. ii Abstract The way companies value their investment opportunities has changed in recent years. With changing market conditions companies are constantly confronted with investment decisions that are increasingly uncertain. Known investment analysis such as net present value and decision tree analysis increasingly undervalue investment opportunities as they lack the flexibility and ability to modify projects when new information is available. A method based on financial option valuation has become the basis for a new technique to value high risk investment opportunities. It is based on valuation in the risk-neutral world and therefore eliminates investors’ attitude to risk. Real option analysis can capture the value of this increased flexibility, which previous methods have not been able to, such as the option to defer,......

Words: 6715 - Pages: 27

Premium Essay

Real Options

...Options Theory Applied to Alternative Energy Industry Christina Clowdus Bus: 630 March 20, 2012 Dr. Shaw Introduction In life, you always have options. It is no different in capital investment. In today's unpredictable business world, managers recognize how risky the most valuable investment opportunities often are, and how useful a flexible strategy can be. That's why they want to know all their options. Yet many current financial assessment tools fail to identify what investors can do to capitalize on future uncertain events. “Managerial flexibility to adapt and revise future decisions in order to capitalize on favorable future opportunities or to limit losses has proven vital to long-term corporate success in an uncertain and changing marketplace” (Brennan, M.J. and E.S. Schwartz 1985, p. 15). Utilizing a real options strategy allows businesses to capture the value of managerial flexibility in adapting decisions in response to unexpected market developments. When used as a conceptual tool, real options allow management to characterize and communicate the strategic value of an investment project (Bjerksund, P. and S. Ekern 1990). Traditional methods (e.g. net present value, discounted cash flow) fail to accurately capture the economic value of investments in an environment of widespread uncertainty and rapid change. Using real options theory, managers can more effectively target crucial opportunities to redeploy, delay, modify, or even abandon capital-intensive......

Words: 2529 - Pages: 11

Premium Essay

Real Option

...Nachman Office: RCB 1239 Phone: 651-1696 email: Office Hours: W 10:00 am – 2:00 pm, or by appointment Prerequisites FI 4000 CSP: 1, 2, 4, 6 Course Description This course focuses on financial policy-making through case analyses, contemporary readings from the professional literature, and problem solving. The emphasis in the course is on investment and financing decisions and their impact on firm value and on capital market imperfections and their impact on the raising of corporate capital. The course also provides an opportunity for the study of additional topics of special current significance such as capital structure and dividend policy, corporate restructuring and the market for corporate control, real options, risk management, international capital budgeting and financing, financial planning and working capital management, project financing, reorganizations and advanced equity valuation. Course Material Required text material • (BMA) R. A. Brealey, S. C. Myers and F. Allen, Principles of Corporate Finance, 8th ed., McGraw- Hill/Irwin, Inc., 2006. •(RP) Reading Packet •(CP) Case Packet The required text (BMA) and the materials that make up the Case Packet (CP) are available at the GSU Book Store. The Reading Packet (RP) is available at ERes. Contents of (CP) and (RP) (with ERes access instructions) follow at the end of this syllabus. The CD-ROM that comes with your text has the Financial Tutor Series with three modules,......

Words: 2563 - Pages: 11

Premium Essay

Real Options

...risk would be a good reflector of all three types of risk. Therefore, it only considered stand-alone risk in the analysis. 13-6 Real options are opportunities to respond to changing circumstances in the context of investment decisions. An investment timing option gives management the opportunity to change when or how a project is undertaken as more information about the project becomes available. For example, a consumer products company might choose to delay the full scale roll out of a new shampoo until information about the consumer confidence index is released. If consumer confidence is high, then the roll out will be undertaken as planned, if consumer confidence is low, and therefore sales are expected to be low, the rollout might be delayed until the economic outlook is better. A growth option gives management the opportunity to expand into the same, or a different market if results are good. For example, Clinch River Valley Energy Group was considering entering into an agreement with Pilot Oil Corporation to sell biodiesel fuel in a few select filling stations in the Southeast. If sales of biodiesel were good, then CRVEG would have the option to scale up production to provide biodiesel throughout the Southeast. If not, then CRVEG could simply cancel the limited contract when it expired. An abandonment option allows management to discontinue an investment if it is not going well or the financial environment changes. For example, the health......

Words: 12421 - Pages: 50

Free Essay

Real Options Analysis Thesis

...Second Order Moment Approach to Real Options Analysis Submitted as a Component of Required Courses for the Award of Bachelor of Engineering (Civil) Honours School of Civil Engineering University of New South Wales Author: Ariel Hersh October 2010 Supervisor: Professor David G. Carmichael     i      ORIGINALITY STATEMENT     ‘I hereby declare that this submission is my own work and to the best of my  knowledge  it  contains  no  materials  previously  published  or  written  by  another  person,  or  substantial  proportions  of  material  which  have  been  accepted  for  the  award  of  any  other  degree  or  diploma  at  UNSW  or  any  other educational institution, except where due acknowledgement is made  in the thesis. Any contribution made to the research by others, with whom I  have worked at UNSW or elsewhere, is explicitly acknowledged in the thesis.  I also declare that the intellectual content of this thesis is the product of my  own work, except to the extent that assistance from others in the project's  design  and conception  or  in  style, presentation  and  linguistic expression  is  acknowledged.’       Signed ……………………………………………..............     Date ……………………………………………..............        ii    1. ABSTRACT Real options analysis can be used by investors to determine the value of potential  investments that offer an owner the right but not the obligation to exercise a strategic ......

Words: 13382 - Pages: 54

Premium Essay

Use of Real Options Theory

...Business 650, Managerial Finance Use of Real Options Theory Financial Management/Modeling I April 18, 2011nstructor: Abstract At a previous employment environment, the president of the corporation acted on a whim, rather than, conducting a series of testing for his expansion to go into other businesses ventures. Within a few short months, the plan was abandoned for lack of profitability. As an employee, I thought of this as a failure on the owner’s part. However, the Real Options Theory is basically, weighing the outcome for expansion or acquisition utilizing capital investments for future ventures. Consider Real Option theory as a method to remove some of the risk in capital investments. Helpful assistance and decision making can be derived using such charts as the Decision Tree. The decision can be extremely tiresome. Use of Real Options Theory in Financial Management/Modeling Long past are the days, where a company can sit idling waiting for an idea, because while waiting someone else is making the move. The benefits that an older company may experience through experience may not fit into today’s society of technological changes. However, the risk of a company that has existed over 50 years, can they lose to new companies that evolve because of revolutionary changes in the ability to change the course of history. Creating valuable service for consumers and bringing a product or service to market, must be planned to meet the expectations of......

Words: 1775 - Pages: 8

Free Essay

The Real Option Theory

...Managerial Finance | Use of Real Options Theory in Financial Management/Modeling | Tiffany Allen | BUS 650 | Prof. Achilles | 11/14/2011 | | Abstract In business, as in life, you always have options to choose from. In today's extremely unstable market, managers realize how incredibly risky some investment opportunities can be, and how useful a flexible strategy can be. Using real options theory, managers can more effectively analyze opportunities to pursue, delay, modify, or abandon projects as events unfold. This paper analyzes the use of real option theory in financial   management and modeling. It discusses issues included in the implementation of the theory in financial management and modeling. It explains new  learning  in  real  option  theory  and a case study that was able to apply the theory along with the application of the theory to my current business which has  helped me understand real option theory. Use of Real Options Theory in Financial Management/Modeling The Real Option Theory has struck some interest with managers in the last couple of decades. Back in the day, companies had plenty of time to make decisions to make changes when they felt it was necessary. Now, if they take their time deciding on changes, chances are by the time they finally make a decision, another company has already made the move. Times have change and especially with how the economy is today, it’s a “Dog Eat Dog World” and in this competitive market,......

Words: 2959 - Pages: 12

Free Essay

Real Options Valuation

...Amihud, New York University, and Haim Mendelson, Stanford University Real Asset Valuation: A Back-to-Basics Approach 46 David Laughton, University of Alberta; Raul Guerrero, Asymmetric Strategy LLC; and Donald Lessard, MIT Sloan School of Management Expected Inflation and the Constant-Growth Valuation Model 66 Michael Bradley, Duke University, and Gregg Jarrell, University of Rochester Single vs. Multiple Discount Rates: How to Limit “Influence Costs” in the Capital Allocation process 79 The Era of Cross-Border M&A: How Current Market Dynamics are Changing the M&A Landscape 84 Transfer pricing for Corporate Treasury in the Multinational Enterprise 97 The Equity Market Risk premium and Valuation of Overseas investments John Martin, Baylor University, and Sheridan Titman, University of Texas at Austin Marc Zenner, Matt Matthews, Jeff Marks, and Nishant Mago, J.P. Morgan Chase & Co. 113 Stephen L. Curtis, Ernst & Young Luc Soenen,Universidad Catolica del Peru, and Robert Johnson, University of San Diego stock Option Expensing: The Role of Corporate governance 122 Sanjay Deshmukh, Keith M. Howe, and Carl Luft, DePaul University Real Options Valuation: A Case study of an E-commerce Company 129 Rocío Sáenz-Diez, Universidad Pontificia Comillas de Madrid, Ricardo Gimeno, Banco de España, and Carlos de Abajo, Morgan Stanley Real Options Valuation: A Case Study of an E-commerce Company by Rocío......

Words: 9906 - Pages: 40

Premium Essay

Real Options Assignment

...SPRING 2014 Real Options Assignment Multiple Choice Questions (3 points each) 1. The following are the main types of real options: (I) The option to expand if the immediate investment project succeeds (II) The option to wait (and learn) before investing (III) The option to shrink or abandon a project (IV) The option to vary the mix of output or the firm’s production methods A) I only B) I and II only C) I, II, and III only D) I, II, III, and IV only 2. The opportunity to invest in a project can be thought of as a three-year real option on an asset which is worth $500 million (PV of the cash flows from the project) with an exercise price of $800 million (investment needed). Calculate the value of the option given that, N(d1) = 0.3 and N(d2) = 0.15. Assume that the interest rate is 6% per year. A) $150 million B) $49 million C) $30 million D) None of the above. 3. The DCF approach must be: A) Augmented by added analysis if there are no embedded options. B) Augmented by added analysis if a decision has significant embedded options. C) Jettisoned if there are any embedded options. D) Computed carefully to identify the options. 4. The following are examples of expansion options: (I) A mining company may acquire rights to an ore body that is not worth developing today but could be profitable if product prices increase (II) A film producing company acquiring the rights to a novel to produce a film based on the novel in the future (III) A real......

Words: 2337 - Pages: 10

Premium Essay

Real Options Case

...Real options analysis, Spring 2014 Deadline: March 17, 3:30pm, submit your solution via e‐mail to Filename convention: .xls 1. Determine the price for a European call by means of the Black – Scholes equation: S_0 = €118, X = €134, T = 1 year, r= 7%, σ= 40%. 2. How does the price in (1) change if, ceteris paribus, a. X increases b. T increases c. r increases d. σ increases. Draw a chart for (a) to (d). 3. For the same values given in (1), determine the option value using the binomial lattice approach with Δt = 1/2 and Δt = 1/12. Explain the difference. 4. Suppose there is a continuous annual dividend yield of 5.5%. What is, for the same values as in (1), the value of a European and an American call? Use the binomial lattice approach with Δt = 1/12. 5. What is, for the same values as in (1), the minimum dividend yield such that early exercise of an American call becomes profitable? Use the binomial lattice approach with Δt = 1/12. 6. Consider a European call option whose payoff at expiration is capped by the amount B, that is, the payoff is MIN [MAX[S(T)‐X,0],B]. a. Draw a chart of the payoff as a function of S(T). b. Derive the price of such an option for B=€75, all other values as in (1) using the binomial lattice approach with Δt = 1/12. c. How could you derive the option price using the Black‐Scholes formula? Compute its value for B=€75. d. Draw a chart that shows the option value as a function of B for B=0 to B=150...

Words: 308 - Pages: 2

Premium Essay

The Promise and Peril of Real Options

...Aswath Damodaran Stern School of Business 44 West Fourth Street New York, NY 10012 Abstract In recent years, practitioners and academics have made the argument that traditional discounted cash flow models do a poor job of capturing the value of the options embedded in many corporate actions. They have noted that these options need to be not only considered explicitly and valued, but also that the value of these options can be substantial. In fact, many investments and acquisitions that would not be justifiable otherwise will be value enhancing, if the options embedded in them are considered. In this paper, we examine the merits of this argument. While it is certainly true that there are options embedded in many actions, we consider the conditions that have to be met for these options to have value. We also develop a series of applied examples, where we attempt to value these options and consider the effect on investment, financing and valuation decisions.3 In finance, the discounted cash flow model operates as the basic framework for most analysis. In investment analysis, for instance, the conventional view is that the net present value of a project is the measure of the value that it will add to the firm taking it. Thus, investing in a positive (negative) net present value project will increase (decrease) value. In capital structure decisions, a financing mix that minimizes the cost of capital, without impairing operating cash flows, increases firm......

Words: 5005 - Pages: 21

Premium Essay

Topic: Ch: 9 “Multi-Period Capital Budgeting Under Uncertainty: Real Options Analysis”

...Multi-period Capital Budgeting under Uncertainty: Real Options Analysis” Table of Contents Section | Name | Page no. | Letter of Transmittal | i | Acknowledgement | ii | Table of Contents | iii | Section-A | Introduction | 01-02 | | A.1 Introduction | 01 | | A.2 Rationale of the study | 01 | | A.3 Objective of Our Study | 02 | | A.4 Scope | 02 | | A.5 Methodology of the Study | 02 | | A.6 Limitations of the Study | 02 | Section-B | Comparing NPV with Decision Trees and Real Options | 03-08 | | B.1 Comparing NPV with Decision Trees and Real Options | 03-05 | | B.2 Recognizing Real Options | 05 | | B.3 Differences between NPV, Decision Trees, and Real Options | 05-08 | | B.4 Risk-Neutral Probabilities | 08 | Section-C | Three Key Assumptions for pricing Real Options | 09-10 | | C.1 Three Key Assumptions for pricing Real Options | 09-10 | Section-D | Valuing Real Options on Dividend-Paying Assets | 10-12 | | D.1 Valuing Real Options on Dividend-Paying Assets | 10-12 | Section-E | Types of Real Options | 12-13 | | E.1 Types of Real Options | 12-13 | Section-F | Valuing Combinations of Simple Real Options | 13-16 | | F.1 Valuing Combinations of Simple Real Options | 13-16 | Section-G | Valuing Compound Options | 17-21 | | G.1 Simultaneous Compound Options | 17-19 | | G.2 Sequential Compound Options | 19-21 | Section-H | Switching Option | 22-26 | | H.1 Switching Option | 22-26 | Section-I | An Example......

Words: 8388 - Pages: 34

Premium Essay

Identification and Analysis of Risks

...Introduction This report identified five dimensions of risks that would potentially influence the valuation of the early-stage biotechnology investment. This report then compared and contrasted the real and financial options that could be used in risk management strategies for Wahoo Genomics under certain assumptions. After analyzing the differences and similarities between the real and financial options, the report proposed to set up a coherent risks management strategy under prescribed assumptions. 1. Identification and Analysis of Risks 1.1 Technological Risk Generally, there are five dimensions of risks that companies face, including technological risk, economic risk, financial risk, performance risk and legal/regulatory risk (Triantis 2000). Among the five dimensions of risks, the technological risk affects the valuation of Wahoo Genomics’ early-stage biotechnology investment most. The technology risk arises often in the R&D stages, especially for companies in the pharmaceutical industry (Triantis 2000). All of the five stages of Wahoo Genomics’ R&D events involve a high level of technological risks. For instance, 95% of new animal drugs are abandoned during the phase of preclinical trial stage. Such high failure rate indicates a high level of R&D outcome risk, and such risk is compensated by potential high returns for investors. Specifically, a high volatility estimate reflects management’s expectations of the probability that the drug can......

Words: 1950 - Pages: 8

Premium Essay


...Chapter 2: Real Options Chapter Introduction and Objectives: Managers often overrule NPV based recommendations in capital budgeting on strategic grounds. Does it mean that the NPV approach is flawed? The standard DCF methodology assumes that managers make an investment decision and then see how the market evolves. In many situations managers can wait and then make a decision. The latter is an option - an option to defer or time the investment decision. Pharmaceutical companies, for example, frequently enter into agreements with small biotechnology companies and Universities for research and development. The traditional DCF methodology does not work well in case of such projects because of prolonged development and uncertainty in cash flows. For gaining access to research, the pharmaceutical company makes an up-front payment and a series of progress payments. These contingent payments give the pharmaceutical company the right but not the obligation to make further investments. Such investments are best evaluated as options . The chapter has the following objectives: • Highlight different types of financial options • Bring out an analogy between financial options and real options • Highlight the different types of real options • Introduce valuation of real options Consider a project that has a best outcome of $ 13 m and a worst outcome of $ 9 m. Each of these outcomes are equally likely to occur (probability is 0.5). The expected......

Words: 8016 - Pages: 33

Premium Essay


...and Charles Kantor, Lehman Brothers. Moderated by Jeff Greene, Ernst & Young. The Case for Real Options Made Simple 39 Raul Guerrero, Asymmetric Strategy Valuing the Debt Tax Shield 50 Ian Cooper, London Business School, and Kjell G. Nyborg, Norwegian School of Economics and Business Administration Measuring Free Cash Flows for Equity Valuation: Pitfalls and Possible Solutions 60 Juliet Estridge, Morgan Stanley, and Barbara Lougee, University of San Diego Discount Rates in Emerging Markets: Four Models and an Application 72 Javier Estrada, IESE Business School Rail Companies: Prospects for Privatization and Consolidation 78 James Runde, Morgan Stanley A Real Option in a Jet Engine Maintenance Contract 88 Richard L. Shockley, Jr., University of Indiana A Practical Method for Valuing Real Options: The Boeing Approach 95 Scott Mathews, The Boeing Company, Vinay Datar, Seattle University, and Blake Johnson, Stanford University Accounting for Employee Stock Options and Other Contingent Equity Claims: Taking a Shareholder’s View 105 James A. Ohlson, Arizona State University and Stephen H. Penman, Columbia University A Practical Method for Valuing Real Options: The Boeing Approach by Scott Mathews, The Boeing Company, Vinay Datar, Seattle University, and Blake Johnson, Stanford University he field of real options has been slow to develop because of the complexity of the techniques and the difficulty of......

Words: 6818 - Pages: 28