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Project Valuation Using Real Options by Chandra Papudesu, Prasad Kodukula

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REAL OPTIONSANALYSIS: THENEW TOOL

The discounted cash flow (DCF) method and decision tree analysis (DTA) are standard tools used by analysts and other professionals in project valuation, and they serve the purpose very well in many applications. However, as discussed in the previous chapter, these tools have certain limitations. For example, if there is large uncertainty related to the project cash flows and contingent decisions are involved, where mangers have flexibility to change the course of the project, some of the value is not accounted for by these tools. In this chapter, we demonstrate how that additional value can be captured by ...

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