• Icon to change language to english
  • Icon to change language to english

REAL OPTIONS – THE NEW PARADIGM IN INVESTMENT DECISION MAKING

Authors

Keywords
corporate fnance, capital budgeting, real options, investment decisions, discounted appraisal methods, undiscounted appraisal methods

Summary
Financial theory has long tried to impose discounted cash flows techniques as a revolutionary approach in evaluating investment alternatives, offering a more accurate and complete idea of the potential in creating a value replacing the „Payback period” that has long been used in capital budgeting. Discounting of cash flows had been the main and indisputable paradigm in making investment decisions prior to the emergence of a real options analysis (ROA) - an application of the theory of financial options in capital budgeting. Real options enhance valuation by embedding flexibility in capital budgeting procedures – the ability of firms to react adequately to favorable or adverse changes in the economic environment, competition or markets. Real options analysis is the perfect approach in evaluating long-term investments and it will not be long before it replaces completely the traditional tools in capital budgeting.

JEL: G31
Pages: 11
Price: 3 Points

More titles

  • A COMPARATIVE ANALYSIS OF INSURANCE COMPANIES OPERATING IN THE FIELD OF „GENERAL INSURANCE”

    The present article makes a comparative analysis of the activities of insurance companies based on officially published information. It argues that the evaluation of the activities of insurance companies in Bulgaria should be based not only on generated premium income, but also on financial indicators. In this context, an assessment is made of the ...

  • MANAGING THE STATE DEBT OF BULGARIA – ISSUES AND CHALLENGES

    Satisfying the public interest in terms of public goods and services has its lim¬its – the resource limitedness in the provision of public goods and services. Since the needs of society and individuals always exceed the available economic resources for their implementation, this necessitates the use of debt and deficit financing tools. This is ...

  • THE TOBIN TAX AND THE SPECULATIVE CURRENCY TRANSACTIONS

    The purpose of this paper is to outline the Tobin Tax ability to solve certain problems related to the instability of financial markets, conditioned by speculative transactions. First proposed in the early 70’s of the 20th century, Tobin’s idea has re-tained its relevance and is still subject of attention both in academic circles and in terms of ...