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Flashcards in Real Options (Valuation Part2) Deck (8)
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1

Real Options

  • Flexibility in real investment project often takes on the form of an option 


Vorraussetzungen: 

  • News will possibly arrive in the future 
  • When it arrives, the news may affect decisions 

2

Timing Option

Option to delay investment 

  • Most Valuable when there is a great deal of uncertainty (Volatilität)
  • Benefits of waiting
  • Cost of Waiting 

3

Growth Option

  • Open up future Growth Opportunities 

4

Time to Build Option (Staged Investment)

  • Project involves several investment stages, it entails the option to invest in the next stage if information is favorable and stop investing otherweise 

5

Abandoment Option 

Shut down current Operations 

  • Can add value to a project because firm can drop unsuccessful projects 

6

Option to Alter Operating scale (Expand or Contract)

  • Expand if information is favorable 
  • Contract if information is unfavorable 

7

Option to switch

  • firm can change the output mix to switch the product or the process 

8