Please enable JavaScript.
Coggle requires JavaScript to display documents.
Real Options: CHOICES - Coggle Diagram
-
Option to delay
-
On the other side if they turn out to be favourable we could go ahead and maybe get even better returns
Delay starting the project could be attractive because if economic conditions turn out to be unfavourable we could cancel
-
Option to abandon
-
-
If the cash flows turned out to be lower than expected, we would clearly want to be able to consider stopping the project early.
-
Option to redeploy
-
Decided to invest a considerable amount in equipment, staff, training etc on the most profitable use of resources
-
It could be beneficial to effectively stop the project earlier than planned and use the same resources for a different project
Ex 1
-
-
-
Pa = 12M, Pe = $10M, r = 0.60, t = 3yrs, s = 0.20
The economic climate over the next few years is thought to be very risky and the volatility attaching to the net present value of the project is 20%.
d1=1.2199, N(d1) = 0.3888+0.5 = 0.888
-
-
-
-
-