RealOptionsandOtherTopicsinCapitalBudgeting文件材料.pptVIP

* * * * ? 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, or duplicated, or posted to a publicly accessible website, in whole or in part. ? 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, or duplicated, or posted to a publicly accessible website, in whole or in part. ? 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, or duplicated, or posted to a publicly accessible website, in whole or in part. Real Options and Other Topics in Capital Budgeting Identifying Embedded Options Valuing Real Options in Projects Chapter 13 13-* What is real option analysis? Real options exist when managers can influence the size and riskiness of a project’s cash flows by taking different actions during or at the end of a project’s life. Real option analysis incorporates typical NPV capital budgeting analysis with an analysis of opportunities resulting from managers’ responses to changing circumstances that can influence a project’s outcome. 13-* Investment Timing Decision Tree At WACC = 10%, the NPV at t = 1 is: $37,889, if CF’s are $43,500 per year, or -$25,508, if CF’s are $23,500 per year, in which case the firm would not proceed with the project. 13-* 50% prob. 50% prob. 0 1 2 3 4 5 Years -$100,000 43,500 43,500 43,500 43,500 -$100,000 23,500 23,500 23,500 23,500 Should we wait or proceed? If we proceed today, NPV = $6,190. If we wait one year, Expected NPV at t = 1 is 0.5($37,889) + 0.5(0) = $18,944.57, which is worth $18,944.57/1.10 = $17,222.34 in today’s dollars (assuming a 10% WACC). Therefore, it makes sense to wait. 13-* Issues to Consider with Investment Timing Options What is the appropriate discount rate? Note that increased volatility makes the option to delay more attractive. If instead, there was a 50% chance the subsequent CFs will be $53,500 a year, and a 50% chance the subsequent CFs will be $13,500 a y