USING REAL OPTIONS IN AN INVESTMENT VALUATION AND DECISION-MAKING PROCESSES

The current stage of global development is characterized by opportunities for investment activity, along with an instability of the economic situation and high uncertainty, dictates the need for investors and managers to make effective decisions, taking into account constantly changing conditions. An investor, while making a decision which project to accept, for the most part, uses the standard methods of financial management as a basis for forecasting and analysis. Considering fast-moving processes of technology change, as well as the conditions of market uncertainty, significant risk and agency problems, the article proposes the use of real options as an insurance (hedging) tool for investors against risks at different stages of the investment project. Risk management can be carried out through real options - the tool of flexibility in decision making. Traditional assessment methods ignore the ability to adapt internal and external changes, however management flexibility can significantly reduce risks, and therefore create additional value.

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EXPLANATION OF THE BENEFIT OF THE INVESTMENT PROJECT ON THE CASH BASIS / IZRAŽAVANJE KORISTI INVESTICIONOG PROJEKTA NA GOTOVINSKOJ OSNOVI

EMC Review - Časopis za ekonomiju - APEIRON ◽

10.7251/emc1802348k ◽

2019 ◽

Vol 16 (2) ◽

Author(s):

Dijana Kremenović

Keyword(s):

Growth And Development ◽

Investment Decision ◽

Investment Decisions ◽

Investment Project ◽

Capital Budgeting ◽

Investment Activity ◽

Investment Projects ◽

Investment Process ◽

Additional Value ◽

Cash Basis

Decisions about the choice of investment projects can significantly affect the destiny of the company, its competitive position in the market, market participation, the direction of further technological development, and even the survival of the company. The aim of this paper is, in the conditions of the current economic reality, to point out the significance of the choice of methods of expressing the benefit of an investment project. In this sense, we have explained in detail all currently applicable methods for assessing the viability of investment projects on a cash basis, comparing the good and bad sides of all the methods presented. In this connection, we especially pointed out the importance of the time value of money. The decision to apply the capital budgeting process, certainly, is the decision of the company itself. However, the outcome of investment activity is borne by a wider circle of consumers, which should be a sufficient reason to encourage education and the application of current methods in this area. If you want to realistically look at the investment process and evaluate the justification of an investment project, it is necessary to identify and analyse the effects of exploitation of a particular investment. In order to ensure the realization of the company’s basic strategic goals and thus ensure its growth and development, it is necessary to make decisions in which the company will focus its investment activities on this investment projects whose effects will ensure the highest return on investment. This work deals with the complex issues of making adequate investment decisions using a method for assessing the viability of investment projects on a cash basis. Bearing in mind the significance of investment activity, we can conclude that for the purpose of making a good investment decision, it is necessary to realistically look at the entire investment process and assess the justification of the implementation of the investment project. In this sense, we identify, measure and quantify the overall effects of the realization of a particular investment. Capital budgeting for the purpose of making an investment decision today is a generally accepted concept in developed economies. There is no doubt that there are many disagreements regarding the choice of the methods of assessing the viability of investment investments, and then the selection of criteria within a certain method. However, it is quite certain that the rich experience of developed countries undoubtedly points to the need for capital budgeting, investment project management, with particular emphasis on the use of discounted methods for assessing the viability of investment investment and respecting both economic and non-economic effects. Implicit benefits that the application of capital budgeting brings to the overall growth and development of the company, in terms of reducing uncertainty in making investment decisions, easier ranking of investment projects, exact measurement of expected benefits, transparency of investment activity criteria, attracting investors and ultimately creating additional value and greater degree of realization of strategic company goals.With this work, we pointed out the fact that capital budgeting is crucial in the process of making an investment decision and in that way has influenced enterprises to seriously deal with the choice of the method of estimating the profitability of investment projects that will surely result in additional value for the company.

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Strategic flexibilities: valuation of a company with the application of the Real Options Theory

Brazilian Journal of Operations & Production Management ◽

10.14488/bjopm.2019.v16.n4.a10 ◽

2019 ◽

Vol 16 (4) ◽

pp. 650-658 ◽

Cited By ~ 1

Author(s):

Izabelle Martinez Martinez ◽

Gislaine Cristina Batistela ◽

Danilo Simões

Keyword(s):

Decision Making ◽

Real Options ◽

Investment Project ◽

Real Data ◽

Added Value ◽

Binomial Model ◽

Real Options Theory ◽

The Real ◽

Secondary Sector ◽

A Company

Goal: In this paper, a binomial model is proposed to evaluate the option of deferring an investment and expanding the operational scale of a forest-based company that will perform the de-duplication of Pinus sp. and will market packaging for storage and transportation of vegetables. Design/Methodology/Approach: The proposed model measured the options of deferring an investment and expanding the operational scale of the forest-based company. In this perspective, the model of evaluation used was the binomial model in discrete time using the Real Options. Results: It was observed that the inclusion of management flexibilities in the decision making process has added value to the investment project; therefore, the project of investments in real assets proved to be economically feasible. Limitations of the investigation: The studies that address the corporate finance framework based on real data are a restrictive factor, due to the lack of collaboration of companies, that is, the availability of information that is usually classified. Practical implications: The study was based on the real data of a company; therefore, it can be adopted as a stimulus to the Real Options approach to the decision making of entrepreneurs or researchers. Originality/value: The focus of the study was to contemplate the managerial flexibilities of an industry of the secondary sector of the Brazilian economy, which performs the unfolding of wood, demonstrating the innovation of the technique approach used in this market segment.

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Real Options Models for Maintenance Decision Making for Offshore Jacket Platforms

24th International Conference on Offshore Mechanics and Arctic Engineering: Volume 2 ◽

10.1115/omae2005-67476 ◽

2005 ◽

Author(s):

Sandra Santa-Cruz ◽

Ernesto Heredia-Zavoni

Keyword(s):

Decision Making ◽

Real Options ◽

Structural Reliability ◽

Net Present Value ◽

Investment Project ◽

Cash Flows ◽

Point Of View ◽

Investment Projects ◽

Financial Variables ◽

Financial Options

Real options models are currently available as one of the best tools for the assessment of investment projects. This is so mainly due to the capability of the real options models to: (1) account for uncertainties in financial variables that are crucial to the investment project; and (2) quantify the value of the possibility to make a decision on whether to defer, abandon, expand or reduce the project at one or several points along time. Recently, some researchers have proposed the use of real options models for the assessment of infrastructure projects for hydrocarbon exploitation from an economics point of view. The objective of this work is to develop real options models for decision making regarding inspection, maintenance and decommissioning of offshore facilities taking into account the financial and technical aspects of the project. In all cases it is considered that at some point in the future, within the service lifetime of the structure, the decision maker will have an option to carry or not an inspection, and take or not a maintenance or decommissioning action, which will determine the structural and financial performance of the project for its remaining lifetime. The in-service times with no structural failure and the rehabilitation times are modeled as random variables. The cash flows are modeled as stochastic processes considering interruption of operation due to repairs after failure. Analytical expressions are derived for the computation of structural reliability and availability depending upon maintenance actions. An example is given for a jacket platform subjected to fatigue deterioration and damage. Simple and compound options of maintenance and decommissioning options are analyzed. The value of the project is computed by means of an approach similar to that of Black and Scholes for financial options [2]. The results are compared to those obtained under the traditional Net Present Value approach.

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Toward Developing a Framework of Cost Elements for Preserving Authentic Electronic Records into Perpetuity

College & Research Libraries ◽

10.5860/crl.63.5.388 ◽

2002 ◽

Vol 63 (5) ◽

pp. 388-404 ◽

Cited By ~ 10

Author(s):

Shelby Sanett

Keyword(s):

Decision Making ◽

Financial Management ◽

Cost Model ◽

Mission Statements ◽

Best Interests ◽

Electronic Records ◽

Collection Management ◽

Management Tools ◽

Decision Making Processes ◽

Financial Challenges

The financial challenges of the processes involved in preserving electronic records into perpetuity are significant. Financial management tools will support the decision-making processes in which archives and libraries engage when preserving electronic records. Applying business concepts, in combination with archival precepts and collection management principles, to the challenge of preserving electronic records will assist institutions such as archives and libraries in making decisions that will support their mission statements and act in the best interests of their users. This article proposes that a cost model specific to preserving authentic electronic records be developed.

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Cognitive Processing of Miscommunication in Interactive Listening: An Evaluation of Listener Indecision and Cognitive Effort

Journal of Speech Language and Hearing Research ◽

10.1044/2020_jslhr-20-00128 ◽

2021 ◽

pp. 1-17

Author(s):

Jennifer M. Roche ◽

Arkady Zgonnikov ◽

Laura M. Morett

Keyword(s):

Decision Making ◽

Cognitive Processing ◽

Language Processing ◽

Cognitive Effort ◽

Mouse Tracking ◽

Computer Mouse ◽

Decision Making Processes ◽

Computer Mouse Tracking ◽

Listening Task ◽

Processing Effort

Purpose The purpose of the current study was to evaluate the social and cognitive underpinnings of miscommunication during an interactive listening task. Method An eye and computer mouse–tracking visual-world paradigm was used to investigate how a listener's cognitive effort (local and global) and decision-making processes were affected by a speaker's use of ambiguity that led to a miscommunication. Results Experiments 1 and 2 found that an environmental cue that made a miscommunication more or less salient impacted listener language processing effort (eye-tracking). Experiment 2 also indicated that listeners may develop different processing heuristics dependent upon the speaker's use of ambiguity that led to a miscommunication, exerting a significant impact on cognition and decision making. We also found that perspective-taking effort and decision-making complexity metrics (computer mouse tracking) predict language processing effort, indicating that instances of miscommunication produced cognitive consequences of indecision, thinking, and cognitive pull. Conclusion Together, these results indicate that listeners behave both reciprocally and adaptively when miscommunications occur, but the way they respond is largely dependent upon the type of ambiguity and how often it is produced by the speaker.

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“It's Not Humanly Possible to Do Everything”: Perspectives on Intervention Decision-Making Processes of Parents of Children with Autism Spectrum Disorders

Perspectives on Language Learning and Education ◽

10.1044/lle22.1.13 ◽

2015 ◽

Vol 22 (1) ◽

pp. 13-21 ◽

Cited By ~ 5

Author(s):

Erinn Finke ◽

Kathryn Drager ◽

Elizabeth C. Serpentine

Keyword(s):

Decision Making ◽

Individualized Education Program ◽

Children With Autism ◽

Autism Spectrum ◽

Sources Of Information ◽

Individual Decision ◽

Decision Making Processes ◽

Spectrum Disorders ◽

Interview Methodology ◽

Communication Interventions

Purpose The purpose of this investigation was to understand the decision-making processes used by parents of children with autism spectrum disorder (ASD) related to communication-based interventions. Method Qualitative interview methodology was used. Data were gathered through interviews. Each parent had a child with ASD who was at least four-years-old; lived with their child with ASD; had a child with ASD without functional speech for communication; and used at least two different communication interventions. Results Parents considered several sources of information for learning about interventions and provided various reasons to initiate and discontinue a communication intervention. Parents also discussed challenges introduced once opinions of the school individualized education program (IEP) team had to be considered. Conclusions Parents of children with ASD primarily use individual decision-making processes to select interventions. This discrepancy speaks to the need for parents and professionals to share a common “language” about interventions and the decision-making process.

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