scholarly journals Investment Project Evaluation By Real Option Method: Example of Entrepreneurship Investment

2021 ◽  
Author(s):  
Hatice Düzakın ◽  
Süreyya Yılmaz
Keyword(s):  
Real Option ◽  
Investment Project ◽  
Capital Budgeting ◽  
Project Evaluation ◽  
Option Value ◽  
The Real ◽  
Managerial Flexibility ◽  
Financial Options ◽  
Real Option Method ◽  
Real Assets

The real option method, which emerged in the 1980s and is based on financial options, has been heavily involved in the literature since the early 2000s. Calculated by adding option value to investments in real assets, this method offers managers opportunities to evaluate the investment project. While the traditional capital budgeting method cannot be changed during the decision project process taken when evaluating the investment project, the real option method can be changed throughout the project process. The reason for this situation is that the real option method does not ignore the managerial flexibility. The reason for this situation is that the real option method does not ignore the managerial flexibility. In this study, these two methods in the literature are examined according to the types of projects.

The Staged Decision Model of Key Grid Project: Based on the Real Option Theory

2014 ◽  
Vol 1008-1009 ◽  
pp. 827-830
Author(s):  
Wei Hu ◽  
Kang Ren Huang ◽  
Zhi Yan Liu ◽  
Min Du
Keyword(s):  
Electricity Market ◽  
Real Option ◽  
Evaluation Model ◽  
Investment Decision ◽  
Investment Project ◽  
Option Value ◽  
The Real ◽  
Real Option Analysis ◽  
Investment Projects ◽  
Real Option Theory

With the continuous development of electric power construction and electricity market reform, power grid investment are facing more and more uncertainties. As to the Key Project investment evaluation for grid, single stage evaluation model is too simple to make an appropriate decision, which overlooked the option value of the investment project. Therefore, in view of the periodical characteristics of investment decision-making process of the grid company’s key project, this article based on the real option analysis methods, and divide the power grid’s key projects into multiple stage according to time sequence, to evaluate each stage’s option value, and to determine the overall value of the grid company’s key investment projects, which has also provided an new train? of thought for the assessment of risk investment projects.

Research on the Real Options in Investment Decision of Waterway Infrastructure Construction

2013 ◽  
Vol 734-737 ◽  
pp. 1617-1620
Author(s):  
Wei Jin
Keyword(s):  
Real Options ◽  
Carbon Dioxide Emissions ◽  
Capital Investment ◽  
Real Option ◽  
Investment Decision ◽  
Energy Utilization ◽  
Real Options Theory ◽  
The Real ◽  
The Government ◽  
Real Option Method

Developing the waterway infrastructure construction can improve the efficiency of energy utilization, reduce the energy consumption intensity and carbon dioxide emissions. Till the year 2020, China plan to complete 19,000 kilometers high grade channel. Construction of water infrastructure construction requires a large capital investment. However, the main financial source of funding the construction of transportation infrastructure at present in China is special financial allocation of the government. The unitary financing structure as well as the funding pressure has leaded to some serious financing problems. This paper applied the real options theory to the waterway infrastructure construction financing, analyzed the limitations of the NPV method and the advantages of real option method in investment decision of waterway infrastructure construction, and took an example to show its feasibility.

scholarly journals Assessing the Option to Abandon an Investment Project by the Binomial Options Pricing Model

2016 ◽  
Vol 2016 ◽  
pp. 1-12 ◽  
Author(s):  
Salvador Cruz Rambaud ◽  
Ana María Sánchez Pérez
Keyword(s):  
Real Option ◽  
Net Present Value ◽  
Investment Project ◽  
Mathematical Expression ◽  
Options Pricing ◽  
Pricing Model ◽  
Operational Flexibility ◽  
Present Value ◽  
Project Appraisal ◽  
Financial Options

Usually, traditional methods for investment project appraisal such as the net present value (hereinafter NPV) do not incorporate in their values the operational flexibility offered by including a real option included in the project. In this paper, real options, and more specifically the option to abandon, are analysed as a complement to cash flow sequence which quantifies the project. In this way, by considering the existing analogy with financial options, a mathematical expression is derived by using the binomial options pricing model. This methodology provides the value of the option to abandon the project within one, two, and in general n periods. Therefore, this paper aims to be a useful tool in determining the value of the option to abandon according to its residual value, thus making easier the control of the uncertainty element within the project.

scholarly journals Return predictability and the real option value of segments

2017 ◽  
Vol 23 (1) ◽  
pp. 167-199 ◽  
Author(s):  
Pingui Rao ◽  
Heng Yue ◽  
Xin Zhou
Keyword(s):  
Real Option ◽  
Return Predictability ◽  
Option Value ◽  
The Real ◽  
Real Option Value

scholarly journals Just-in-Time system in terms of real options

Competitio ◽  
2020 ◽  
Vol 3 (1) ◽  
Author(s):  
Andrea Rozsa
Keyword(s):  
Resource Allocation ◽  
Real Options ◽  
Best Practice ◽  
Real Option ◽  
Corporate Strategy ◽  
Capital Budgeting ◽  
Just In Time ◽  
The Real ◽  
Practice Approach ◽  
Physical Assets

The value creation process in a company and the competitive position are critically influenced by corporate resource allocation and proper valuation of investment alternatives. After the Second World War, capital budgeting and strategic planning emerged as two complementary but different systems for resource allocation. The real options approach developed in the ’80s may provide a useful tool for making a connection between capital budgeting and strategic management. Real options are implicit managerial and operating flexibilities embedded in many non-financial assets and liabilities. In a wider sense: “A real option is the investment in physical assets, human competence, and organisational capabilities that provide the opportunity to respond to future contingent events” (Kogut-Kulatilaka, 2001). This paper shows that Just-in-Time (JIT) system as management philosophy can be regarded as a knowledge-based or capability-based implicit strategy rather than a simple, easy-toimitate best practice approach. Moreover, implementation of JIT can be considered as a strategic investment. The presentation focuses on how the relation among strategic investments, developed technological systems and corporate strategy can be expressed through the real options view.

scholarly journals A Real Options Approach to Valuate Solar Energy Investment with Public Authority Incentives: The Italian Case

Energies ◽  
2020 ◽  
Vol 13 (16) ◽  
pp. 4181
Author(s):  
Antonio Di Bari
Keyword(s):  
Solar Energy ◽  
Real Options ◽  
Real Option ◽  
Net Present Value ◽  
Option Value ◽  
Present Value ◽  
Energy Investment ◽  
The Real ◽  
Real Options Approach ◽  
Real Option Value

Solar energy investment represents currently a valid reason to support sustainable economic development. In fact, over the last few years, governments have applied different measures to incentivize private consumers and firms to use renewable energies. Photovoltaic (PV) projects are characterized by uncertainty due to meteorological conditions, the unpredictable behavior of government, and managerial flexibility. Since the Net Present Value (NPV) approach is not able to capture these uncertain factors, it was replaced with the Real Options Approach (ROA). The latter method manages to embed flexibility in PV investment using binomial trees. This paper valuates PV investment in all regional areas in Italy using an integrated approach between the discounted cash flows method and real option value, called Expanded Net Present Value (ENPV). We fit the probability of tax benefits into a binomial lattice model after analyzing the geographical position and weather conditions of all regional capitals of Italy. The results show that the cities with high irradiance/temperature have positive NPV and high investment values. On the other hand, while most cities have negative NPV, the inclusion of the flexibility in investment decisions gives additional value to the project, making the ENPV positive and implying an attractive investment opportunity with the possibility of delaying the project. We also propose a sensitivity analysis that shows how the real option value changes when incentive policies of the government become more attractive. This paper contributes to the existing literature in the way of considering financial, meteorological/geographical, and political factors to valuate PV investment.

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