Subject category:
Finance, Accounting and Control
Published by:
Harvard Business Publishing
Version: 22 March 1995
Length: 12 pages
Abstract
Introduces a framework for evaluating corporate investment projects as call options. Presumes readers are familiar with basic option pricing and basic capital budgeting rules. Explains the motivation for viewing projects as options; presents a mapping between a capital project and an option; shows how to price the option; and explores the managerial implications of this approach to capital budgeting. Concludes with a discussion of common practical, analytical questions that arise with this methodology.
About
Abstract
Introduces a framework for evaluating corporate investment projects as call options. Presumes readers are familiar with basic option pricing and basic capital budgeting rules. Explains the motivation for viewing projects as options; presents a mapping between a capital project and an option; shows how to price the option; and explores the managerial implications of this approach to capital budgeting. Concludes with a discussion of common practical, analytical questions that arise with this methodology.