Subject category:
Finance, Accounting and Control
Published by:
Harvard Business Publishing
Version: 4 June 1999
Length: 8 pages
Abstract
Provides a basic understanding of real options in corporate finance. Traditional discounted cash flow techniques (NPV) do not deal well with managerial flexibility or future response to uncertainty. The value of this flexibility can be significant, and is handled well by option- pricing techniques. A description and taxonomy of real options is followed by several examples of valuing and using real options to make better value-enhancing decisions.
About
Abstract
Provides a basic understanding of real options in corporate finance. Traditional discounted cash flow techniques (NPV) do not deal well with managerial flexibility or future response to uncertainty. The value of this flexibility can be significant, and is handled well by option- pricing techniques. A description and taxonomy of real options is followed by several examples of valuing and using real options to make better value-enhancing decisions.