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Use of Real Options Theory

In: Business and Management

Submitted By jianpengding
Words 1775
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Business 650, Managerial Finance
Use of Real Options Theory
Financial Management/Modeling
April 18, 2011nstructor:

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 stockholder profits. Consider the comparison of social networking sites, Myspace and Facebook. Both are considered to be rapidly growing and competitive to increasing in membership. However, rapidly increase the popularity of Facebook and exceeded the expectations within the social network environment. The billion dollar corporation enters the market with more appeal to younger consumer, as well as…...

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