The Real Options Approach to Investment Decision Making

1. Real Options
Real-options analysis is one of the most important ideas of applied corporate finance to be developed in the last 30 years. Real-options analysis gives management the flexibility to address uncertainties, as they're resolved. Conventional capital budgeting fails to account for this flexibility and, moreover, fails to integrate strategic planning. But the real-options methodology goes beyond a simple view of valuation and more closely matches the manner in which businesses operate. …