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Business leaders are frequently faced with investment decisions on new and ongoing projects. The challenge lies in deciding what projects to choose, expand, contract, defer, or abandon, and which method of valuation to use is the key tool in the process. This title presents a step-by-step, practical approach to real options valuation to make it easily understandable by practitioners as well as senior management. This systematic approach to project valuation helps you minimize upfront investment risks, exercise flexibility in decision making, and maximize the returns. Whereas the traditional decision tools such as discounted cash flow/net present value (DCF/NPV) analysis assume a ""fixed"" path ahead, real options analysis offers more flexible strategies. Considered one of the greatest innovations of modern finance, the real options approach is based on Nobel-prize winning work by three MIT economists, Fischer Black, Robert Merton, and Myron Scholes.

Project Valuation Using Real Options: A Practitioner's Guide

Chapter 1: IntroductionChapter 2: Traditional Project Valuation Tools Chapter 3: Challenges with Traditional ToolsChapter 4: Real Options: The New ToolChapter 5: ROA CalculationChapter 6: ROA ApplicationChapter 7: Simple OptionsChapter 8: Advanced OptionsChapter 9: Real Options in Real WorldAppendices:A - Assessment Survey: Do You Need Real Options?B - Derivation of Real Options EquationsC - Replicating Portfolio ApproachD - Building Spreadsheets to Real Options Calculations