Explore  What do you want to learn?

Nikil ukram T

Principles of Corporate Finance – A Tale of Value Week 6 The valuation of a real investment project – analyzing Prev Home

Real options’ valuation methodology adds to the NPV’s for all selling prices and discount rates have been
Lectures
conventional net present value (NPV) estimations by calculated.
Reading taking account of real life flexibility and choice. This is
0 pts
the first of two articles which considers how real options
Assignments No
can be incorporated into investment appraisal decisions.
This article discusses real options and then considers 2 pts
Discussion Prompt:
Open Question 6 Yes
the types of real options calculations which may be
5 min encountered in Advanced Financial Management,
through three examples. The article then considers the
Quiz: Final Test Project IRR’s for all selling prices have been found.
limitations of the application of real options in practice
14 questions
and how some of these may be mitigated.The second 0 pts
Peer-graded article considers a more complex scenario and examines No
Assignment: The how the results produced from using real options with 2 pts
valuation of a real
NPV valuations can be used by managers when making Yes
investment project –
strategic decisions.Net present value (NPV) and real
analyzing inputs,
scenarios, sensitivity, and optionsThe conventional NPV method assumes that a
timing project commences immediately and proceeds until it Clear comments have been provided.
Grading in progress finishes, as originally predicted. Therefore it assumes 0 pts
that a decision has to be made on a now or never basis, No
Review Your Peers: The
and once made, it cannot be changed. It does not
valuation of a real 1 pt
investment project –
recognise that most investment appraisal decisions are
Yes
analyzing inputs, flexible and give managers a choice of what actions to
scenarios, sensitivity, and undertake.The real options method estimates a value
timing for this flexibility and choice, which is present when
managers are making a decision on whether or not to
undertake a project. Real options build on net present
value in situations where uncertainty exists and, for
example: (i) when the decision does not have to be
made on a now or never basis, but can be delayed, (ii)
when a decision can be changed once it has been made,